Bank of America (BAC) profits dropped in the first quarter despite narrowing losses in its shrinking mortgage department.

BofA reported net income of $653 million, or 3 cents per share, down from more than $2 billion the same period last year, due mostly to accounting charges. The bank took a $4.8 billion valuation adjustments related to changes in its credit spreads.

Revenue totaled $22.4 billion, down 17% from last year.

Profits in its Global Markets and equity businesses showed the deepest declines.

The mortgage department lost another $1.1 billion in the first quarter, narrowing from a $2.4 billion loss in the first three months of 2011.

BofA said mortgage funding, both purchase and home equity loans, declined 76% from last year to $16 billion in the first quarter. The drop was due to the exiting of its correspondent lending channel. Revenue increased however due to higher margins on direct originations, the bank said.

During the first quarter, Fannie Mae cut ties with BofA and would no longer purchase some home loans from the bank. In the first quarter of last year, BofA originated $57 billion in first mortgages alone.

It's not just originations. BofA reduced its mortgage servicing portfolio to $1.3 trillion, down from $1.4 trillion last year. Its legacy asset division trimmed its amount of 60-plus day delinquencies to 1.09 million mortgages at the end of the first quarter, down from 1.16 million.

Allowance for loan losses dropped to $32.2 billion in the first quarter from $39.8 billion last year. And its provision for representation and warranties was $282 million, down from $1 billion last year.

Nonperforming loans, leases and foreclosed properties totaled nearly $27.8 billion, down from $31.6 billion last year.