Shares of banks and other financial-service companies rose Monday after Bank of America announced it is settling some buyback claims on bad home loans with Fannie Mae and Freddie Mac.

The nation's largest bank said the deal is linked with residential mortgages written by Countrywide Financial, the lending giant it bought in 2008.

Bank of America made a $1.34 billion cash payment to Fannie Mae and a $1.28 billion payment to Freddie Mac on Friday. The agreements reached with the companies leave Bank of America with approximately $2.7 billion in outstanding claims for Fannie Mae and Freddie Mac.

Bank of America shares shot up 87 cents, or 6.5 percent, to $14.21 in afternoon trading.

Bank of America's deal follows a similar settlement announced last week by Ally Financial Inc., formerly GMAC, which said it would pay $462 million to settle buyback claims on home loans sold to Fannie Mae.

The deals have cost less than investors expected, and provided hope that other banks could soon settle with the government-owned mortgage financers.

The stocks of other major mortgage lenders benefitted. Shares of JPMorgan Chase & Co. added $1.44, or 3.4 percent, to $43.85. Wells Fargo & Co gained 54 cents, or 1.7 percent, to $31.53. Citigroup Inc. rose 11 cents, or 2.3 percent, to $4.84.

Regional banks also got a lift from the news. Shares of First Horizon National Corp. gained 44 cents, or 3.7 percent, to $12.22. Zions Bancorp. added 80 cents, or 3.3 percent, to $25.03. And Huntington Bancshares Inc. gained 16 cents, or 2.3 percent, to $7.03.