By Yinka Kolawole

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 deal comes after a group of 22 investors demanded that the bank repurchase $47 billion in mortgages that its Countrywide unit sold to them in the form of bonds.

The group, which includes the Federal Reserve Bank of New York, Pimco Investment Management, and Blackrock Financial Management, argued that Countrywide enriched itself at the expense of investors by continuing to service bad loans while running up servicing fees.

Bank of America, which bought Countrywide in 2008 for $4 billion, has denied those claims.

The mortgages were granted without proper checks on, for example, borrowers’ creditworthiness. The payout is the third of its type this year. The bank says it will also set aside another $5.5bn in provisions.

Bank of America’s chief executive, Brian Moynihan, said: “We will continue to act aggressively and in the best interest of our shareholders to clean up the mortgage issues largely stemming from our purchase of Countrywide.

We have said consistently if people are reasonable and can get to a reasonable assessment of their claims and it’s in the best interest of shareholders, we will settle,” he said.

The settlement is subject to court approval and covers 530 trusts with original principal balance of $424 billion. As a result of the settlement, Bank of America put its second-quarter loss at between $8.6 billion to $9.1 billion.

Earlier this year, the bank agreed to pay US mortgage giants Fannie Mae and Freddie Mac about $2.6bn (£1.7bn) to settle claims it sold them bad home loans.

Those claims also related to loans sold by Countrywide Financial Corporation, which Bank of America bought in 2008. It agreed a further payout in April for an estimated $1.6bn to resolve claims with the bond insurer Assured Guaranty.