Bank of America (BAC: 7.26 -0.55%) reported a net loss of $1.2 billion, or 16 cents per share, in the fourth quarter of 2010 as the bank braced for outstanding mortgage repurchase claims.

Losses were wider than a year ago when the bank reported a fourth-quarter loss of $194 million. For all of 2010, BofA recorded a net loss of $2.2 billion. Revenue for the fourth quarter was $22.6 billion, an 11% drop from a year ago.

Most of the expense for the fourth quarter was the $4.1 billion BofA set aside in the fourth quarter to cover faulty mortgages originated by the acquired Countrywide Financial Corp. it might have to buy back. This includes the $3 billion settlement with the government-sponsored enterprises announced in January. For the entire year, BofA had set $6.8 billion in provisions for possible mortgage repurchase requests.

The total amount of unresolved repurchase requests stands at $10.7 billion for BofA, down from $12.9 billion a the end of the third quarter, but it said it was liable for $5.4 billion at the end of the fourth quarter.

BofA also spent $1.5 billion in litigation expenses, excluding fees paid to external legal service providers. For the entire year, BofA spent $2.6 billion in legal expenses. The bank said lower sales and trading revenues also led to the loss in the fourth quarter.

Another $2 billion in expense came from increased default and other loss mitigation servicing operations, the bank said, but it was partially offset by more mortgage servicing rights business.

"Last year was a necessary repair and rebuilding year," BofA CEO Brian Moynihan said. "Our results reflect the progress we are making at putting legacy – primarily mortgage-related – issues behind us."

The bank did shed more than $19 billion in assets. It also originated $85 billion in mortgages during the fourth quarter. Roughly 26% were for home purchases with the rest for refinancing. However revenue for its home loans and insurance business was $10.6 billion, down 37% from a year ago. The decline was due to fewer loans written, reflecting a drop in the overall mortgage market, the bank said.

Still, Moynihan remains optimistic about 2011, but he told CNBC Friday morning that he would not raise the bank's stock dividend until the second half of the year. In the financial statement, he highlighted the need for a rejuvenated housing market.

"We enter 2011 with the best customer franchise in the business against a backdrop of an improving economy. Full economic recovery depends on housing market stability," Moynihan said. "We will return value to shareholders by focusing on customers and clients, continuing to build capital, and executing our strategy."

Write to Jon Prior.

Follow him on Twitter: @JonAPrior