Bank of America home loans settlement to cost $8.5 billion

(CBS/AP) NEW YORK - Bank of America and its Countrywide unit will pay $8.5 billion to settle claims that the lenders sold poor-quality mortgage-backed securities that went sour when the housing market collapsed.

The bank says the settlement with 22 investors, of which includes Pimco, Metropolitan Life, BlackRock, and the Federal Reserve Bank of New York, is subject to court approval and covers 530 trusts with original principal balance of $424 billion.

The settlement would wipe out all of the company's earnings in the first half of this year, and it could also provide a template for deals with other big banks that faces similar claims, reports The New York Times.

The deal also requires that Bank of America improves its payment collection process by hiring specialists to focus on high-risk loans, and do a better job of tracking whether the bank is adhering to its own internal loan-servicing standards, reports The Times.

On Wednesday, the bank is expected to announce plans to set aside even more money, in addition to the $8.5 billion, which will be earmarked to cover future losses on mortgage securities, according to the paper.

Shares of Bank of America Corp. jumped 4 percent before the market opened, with investors happy that the bank can put very big uncertainty behind it.