NEW YORK ( TheStreet) -- Bank of America ( BAC) is reportedly close to an agreement to pay $8.5 billion to settle claims from a group of investors that lost money on mortgage-backed securities purchased before the housing collapse.

The Wall Street Journal reported the bank was nearing the settlement late Tuesday, citing sources familiar with the matter. CNBC also reported the agreement was close.

Shares of Bank of America surged 3.3% to $11.18 in after-hours action, according to Nasdaq.com, with volume reaching close to 3.6 million.

A group of 22 investors that hold a collective $56 billion in mortgage-backed securities, including money manager Blackrock ( BLK), MetLife ( MET) and the New York Federal Reserve Bank have alleged that securities bought before the financial crisis from Countrywide Financial were composed of loans that did not meet sellers' promises about the quality of the borrowers or collateral.

The investor group also claims Countrywide failed to maintain the right documentation while managing the loans.

Bank of America's board, which still has to approve the settlement, met on Tuesday to discuss the deal, according to the WSJ report.

-- Written by Shanthi Bharatwaj in New York.

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