The proposed deal follows a contentious summer of talks between Bank of America—the bank with the biggest legal exposure to claims of fraud in the packaging and selling of mortgage-backed securities from prior to the financial crisis—and the Justice Department.
Bank of America has already paid or agreed to pay a combined $60 billion to settle previous lawsuits and other claims of fraudulent mortgage-issuance and sales practices filed by a wide swath of investors that range from sophisticated players, like BlackRock and AIG, to state attorneys general.
Early in July, U.S. Attorney General Eric Holder declined to meet with Bank of America CEO Brian Moynihan, arguing that not enough progress had been made in the deal talks to do so.
Read MoreBank of America to pay $1.27 billion in fraud case
But last week, the very same day that a federal judge in New York demanded a $1.3 billion penalty in a related, but separate, mortgage-securities case, stating that a Bank of America subsidiary unit had engaged in "brazen fraud," Holder spoke to Moynihan by telephone, demanding that Bank of America up the settlement amount under discussion or face an imminent Justice Department lawsuit.
—By CNBC's Kate Kelly