As part of the deal, BofA will repurchase failed mortgages worth around $2.8 billion, in an attempt to draw a line under Fannie Mae and Freddie Mac's claims that the financial giant was aware loans they were sold on were faulty.
The arrangement was approved by the Federal Housing Finance Agency (FHFA), which is responsible for the oversight of Fannie Mae and Freddie Mac and said the move was "consistent with market practice and FHFA's conservatorship responsibilities."
BofA expects to cover the payments through a provision of $3 billion in the second quarter of this year and has been dogged by allegations relating to the underwriting processes of subsidiary Countrywide Financial.
Last week, car and home insurer Allstate announced plans to sue BofA, accusing Countrywide of misrepresenting the risks of $700 million worth of mortgage securities.
By Claire Archer