7 January 2013 Last updated at 08:45 ET

Bank of America to pay Fannie Mae billions to settle mortgage claims

Bank of America has agreed to pay US government mortgage agency Fannie Mae $3.6bn (£2.2bn) to settle claims relating to residential home loans.

In addition, it has agreed to buy back 30,000 mortgages for $6.75bn, and pay a further $1.3bn in compensation.

The agreement brings to an end a long-running dispute between the two parties.

Fannie Mae argued that the bank had sold it toxic home-loan debts between 2000 and 2008.

In the run-up to the financial crisis of 2007-8, home loans grouped together and sold on as investments became increasingly popular.

When the underlying mortgage holders were unable to repay their debts, the investments plummeted in value, with disastrous consequences for banks all over the world.

'Significant step'

"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 at Fannie Mae.

Fannie Mae said the loans "did not meet our standards at the time of origination, and we are pleased to have reached an appropriate agreement to collect on these repurchase requests."

The agreement covers loans worth about $1.4tn, with outstanding balances of $300bn.

Bank of America said the settlements were "a significant step in resolving our remaining legacy mortgage issues".

In October, the US government sued the bank for alleged mortgage fraud, accusing subsidiary Countrywide Financial of selling thousands of toxic home loans to Fannie Mae and the government's second mortgage agency Freddie Mac.

Earlier in the month, it took similar action against the banks Wells Fargo and JP Morgan Chase.

http://www.bbc.co.uk/news/business-20934751#