Under the agreements, Bank of America would pay $3.55 billion in cash to Fannie Mae and repurchase for $6.75 billion residential mortgage loans it had sold to the government-controlled company

Washington: Bank of America said it would pay $11.6 billion to settle claims on soured loans sold to government-backed mortgage finance giant Fannie Mae during the home price bubble, reports PTI.

Under the agreements, Bank of America Corp said it would pay $3.55 billion in cash to Fannie Mae and repurchase for $6.75 billion some residential mortgage loans it had sold to the government-controlled company.

In addition, Bank of America will pay $1.3 billion to address mortgage servicing issues, Fannie Mae said in a separate statement.

"A favourable resolution of this long-standing dispute between Fannie Mae and Bank of America is in the best interest of taxpayers," said Bradley Lerman, Fannie Mae executive vice president.

Fannie Mae, the nation's largest mortgage buyer, said the deal would compensate it for actual and projected losses resulting from the loans.

The loans had been bundled into mortgage-backed securities and bought by the finance giant over 2000-2008, but had not met its underwriting standards.

As the housing bubble collapsed, Fannie Mae and sister company Freddie Mac were reeling on the brink of bankruptcy from soured loans.

The government stepped in with a combined $180 billion taxpayer-funded bailout in September 2008 and put both firms -- responsible for the bulk of US mortgages -- under the control of the Federal Housing Finance Agency. The government is not expected to recover much of the money it injected into the two.

The settlement announced covers residential mortgage loans originated by Bank of America's own home loan unit and by entities related to Countrywide Financial Corporation, which the bank acquired in 2008.

"These agreements are a significant step in resolving our remaining legacy mortgage issues, further streamlining and simplifying the company and reducing expenses over time," said Brian Moynihan, Bank of America chief executive.

The Charlotte, North Carolina-based bank estimated the measures would reduce pre-tax earnings for the 2012 fourth quarter by $2.7 billion.

Separately, government regulators announced today a settlement with 10 mortgage servicers, including Bank of America, which will pay $8.5 billion in cash and other assistance to borrowers hurt by the servicers' "deficient" practices.

Shares in Bank of America were flat at $12.11 in morning trade in New York.

For the struggling bank, the Fannie Mae settlement marks another milestone in its efforts to extricate itself from the US mortgage crisis that shook global financial markets in 2007-2008 and sparked the US Great Recession.