The settlement comes a month after the Wall Street's bank's attorney said Ambac could not prove its $2.7 billion case against BofA over troubled mortgage-backed securities on evidence that it was a "bad actor" before the 2008 financial crisis.

Between 2004 and 2006, Ambac insured securities backed by Countrywide loans worth $25 billion. The insurer claims 80% of the loans were the product of poor underwriting standards or had other deficiencies that violated insurance agreements, and that Bank of America failed to repurchase the loans as required.

Ambac sought to recoup more than $2 billion in insurance claims it paid to cover investor losses on securities backed by 375,000 home loans from Bank of America's Countrywide unit.