The Bank of America Thursday said that it would no longer provide new mortgages to Fannie Mae following the escalation of disagreement over who should be bearing the cost for defective mortgages.

The bank stated that starting February, it stopped delivering home-purchase loans and certain refinanced mortgages to be packaged into Fannie Mae loan securitizations. The Bank of America revealed the decision in a filing with the Securities and Exchange Commission.

This decision will not affect the credit available to our customers, and we will rely on other sources of liquidity to continue to ensure we are lending to our customers and supporting the housing-market recovery, said Jerry Dubrowski, a spokesman for the bank.

We remain focused on supporting our customers with loan modifications and refinancing through the Making Home Affordable program, he added.

We are focused on providing credit for our customers, and this decision is consistent with that. We have ended the past practices of Countrywide, which had a significant relationship with Fannie Mae, he continued.

Fannie Mae was set up as a private company by the government to provide ready funds for home lenders by buying mortgages and pooling them to back mortgage bonds.

The Bank of America was Fannie's third-largest provider last year, according to Inside Mortgage Finance. The bank originated $156.1 billion in mortgages last year, of which $37.7 billion were sold to Fannie.

It will continue to sell new loans to Freddie Mac, the other U.S.-controlled mortgage-finance firm, and Ginnie Mae, a company that packages loans backed by the Federal Housing Administration.

The Bank of America, once the nation's largest bank by assets, has been steadily shrinking its balance sheet, and now ranks second to JPMorgan Chase.