UPDATE: Bank Of America Rebuffs Mortgage Letter From Investors

Bank of America Corp. (BAC) said Tuesday it will "vigorously defend" itself against demands in a letter from a group of investors that it take back billions of dollars in failing mortgages originally issued by the Charlotte bank's Countrywide subsidiary.

Those investors include government-sponsored mortgage company Freddie Mac (FMCC), according to two people familiar with the matter, and the Federal Reserve Bank of New York, according to a person familar with the matter.

Bank of America said in a statement, "We're not responsible for the poor performance of loans as a result of a bad economy. We don't believe we've breached our obligations as servicer. We will examine every avenue to vigorously defend ourselves."

BlackRock Inc. (BLK) is also an investor challenging Bank of America, according to a person familiar with the matter. Another person familiar with the situation said Pacific Investment Management Co., or Pimco, a unit of Allianz SE (ALV.XE, AZSEY), is also one of the investors behind the letter.

The inclusion of Freddie Mac is notable because it and fellow government-controlled mortgage company Fannie Mae (FNMA) have already filed billions of dollars in claims over mortgages that Bank of America originated and sold directly to the agencies. Bank of America has set aside billions to pay such claims.

Freddie Mac was among the most active buyers of mortgage-backed securities that weren't backed by government entities during the housing boom. The company bought $121 billion in private-label securities in 2004, $179 billion in 2005 and $122 billion in 2006.

Shares in Bank of America spiraled downward Tuesday afternoon after names of some investors behind the letter surfaced. They closed down 4.4% to $11.80.

Bank of America bought Countrywide Financial Corp. in 2008 during the depths of the financial crisis. The New York Fed inherited its positions in the Countrywide securities through its 2008 rescues of Bear Stearns Cos. and American International Group Inc. (AIG).

-By Marshall Eckblad, Dow Jones Newswires; 212-416-2156; [e-mail]

(Matthias Rieker and Nick Timiraos contributed to this report.)