By Maria Woehr, TheStreet

Bank of America's (BAC) lackluster first quarter earnings performance can be summed up in two words: mortgages fallout.

The bank reported first quarter earnings of $2 billion, or 17 cents a share, missing Thompson Reuters analysts estimates of 27 cents a share.

Results were weighed down by a $38.5 billion settlement the bank reached with monoline insurer Assured Guaranty (AGO) that resolves its outstanding and potential repurchase claims against BofA. The agreement includes a cash payment of $1.1 billion to Assured Guaranty, and a loss-sharing reinsurance arrangement that has an expected value of approximately $470 million.

"This agreement is an important step towards resolving non-Government Sponsored Enterprise legacy issues on terms beneficial to our company," said Terry Laughlin, legacy asset servicing executive in a statement issued Friday.

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Separately, Bank of America reported a net loss of $2.4 billion in consumer real estate services compared, to a net loss of $2.1 billion for the first quarter in 2010. Revenue declined by $1.4 billion, and noninterest expense increased by $1.6 billion from the year-ago quarter.

Sterne Agee analyst Todd Hagerman had predicted that mortgage banking income for the quarter would be $1.4 billion for the first quarter of 2011 compared to the $1.5 billion reported during the same period last year. He estimated mortgage banking will bring in $6.6 billion in total for the year, a slight increase from $5.7 billion last year.

"Mortgage is again becoming another, "why bother" issue for the sector. Narrowly, everyone has to run screens on whose quarter may suffer from lower revenues. Broadly, mortgage fines, consent orders and lawsuits lead to tighter underwriting, which leads to lower home prices because no one can get a mortgage," said Nomura analyst Glenn Schorr.

Bank of America reported that factors in the decline in mortgage banking income include a $487 million increase in the representations and warranties provision, a $534 million decrease in service charge income from overdraft policy changes, a decline of $943 million from fair value adjustments related to structured liabilities and tighter credit spreads.

While provisions for credit losses decreased to $1.1 billion from $3.6 billion in the year-ago quarter from improving delinquencies and lower net charge offs, fewer home sales and more legal issues plagued the balance sheet.

Including the monoline settlement, representations and warranties provisions were $1 billion in the first quarter of 2011, compared to $526 million in the first quarter of 2010.

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Analysts had predicted that losses from mortgage repurchases for the quarter would increase after JPMorgan Chase (JPM) reported losses of $420 million for the first quarter, up from $349 million in the fourth quarter.

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