Bank of America, one of five banks in the $25 billion settlement with the U.S. government over foreclosure practices, has struck a side deal that will allow it to reduce penalties in return for bigger cuts to borrowers' mortgage balances, the Wall Street Journal said.

Bank of America will make deeper and broader cuts than other banks, which will allow it to avoid as much as $850 million in penalties and give more than 200,000 financially strapped households the opportunity to sharply reduce their mortgage balances, the paper said.

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