Bank of America has agreed to settle multi-state claims of deceptive and predatory lending practices against Countrywide Financial, the mortgage lender, in a deal that could result in a cut of up to $8.4bn in interest rate and principal payments for homeowners.

BofA, which bought Countrywide in July, reached a deal with attorneys-general in 11 states, under which it would offer more affordable mortgage payments for borrowers who financed their homes with subprime loans or pay option adjustable rate mortgages serviced by Countrywide and originated before December 31, 2007.