Bank of America to pay $10 billion to Fannie Mae

Charlotte, N.C. - Bank of America will pay mortgage giant Fannie Mae $3.6 billion and buy back more than 30,000 loans to resolve a long-running dispute between the two, the bank announced Monday. The Charlotte bank will pay more than $10 billion in total.

The settlement covers mortgages totaling about $1.4 trillion originated primarily by Countrywide Financial Corp. and sold to Fannie Mae. After they started to go sour, Fannie Mae sought to force Bank of America - which bought Countrywide in 2008 - to buy them back, claiming that the bank misrepresented the quality of the loans. The two had battled over the loans for at least a year.

A large portion will be paid out of the bank's reserves. The agreements will cut into Bank of America's fourth-quarter earnings by about $2.7 billion, the bank said.

This settlement takes care of one of the largest issues looming in investors' minds.

Fannie Mae said the 30,000 loans Bank of America is repurchasing had the "potential to cause significant future losses." Fannie is still under conservatorship by the Federal Housing Finance Agency.

Bank of America also said it would sell the rights to service another 2 million mortgages, worth $306 billion, that are owned by the government-sponsored entities. About 10 percent of them were more than 60 days delinquent.

The bank also reported that it will have another $2.5 billion in costs related to mortgage servicing settlements and other mortgage matters when it reports earnings next week.