While cutting elsewhere over the past year, Bank of America (BAC) redirected thousands of employees to a single division built only to solve its legacy mortgage problems, and a crucial turning point could be near. This sea change, coupled with the looming robo-signing settlement with state attorneys general, could prove to be a dividing moment for the banking giant. Since the housing crisis and BofA's takeover of Countrywide in 2008, mortgages have continued to haunt the bank. In fact, its Legacy Asset Servicing division established in early 2011 to sort through delinquent mortgages and repurchase claims from investors is the only department growing at BofA. The bank moved 13,000 employees to the division over the past year, bringing the unit's total staff to roughly 48,500 people, according to BofA's fourth-quarter financial statements released Thursday. More than 3,700 employees moved during the fourth quarter alone, but that was the same period when overall layoffs began as part of the bank's restructuring program known as New BAC. The company cut 7,000 employees overall during the fourth quarter with more projected to come this year. The result of the servicing influx is beginning to show but at a crawl. The bank reported roughly $4 billion worth of delinquent mortgages at Dec. 31, down from $5.1 billion one year ago and nearly half of the $7.6 billion in troubled home loans at the end of 2008. BofA's provision for repurchase claims shrank to $263 million at the end of the fourth quarter, down from $4.1 billion at the end of 2010. (Click on the graph below to expand).

CEO Brian Moynihan said in a conference call with investors Thursday that the nearing robo-signing settlement to be struck with the multistate coalition of state attorneys general, the Justice Department and the Department of Housing and Urban Development could be a watershed moment for the bank. HUD Secretary Shaun Donovan said Wednesday that a settlement with the largest servicers was very close after more than one year of negotiations. BofA set aside $1.5 billion in litigation reserves tied directly to mortgage-related matters in the fourth quarter, reflecting a fair-lending settlement struck and the pending AG deal. The latest structure of the agreement would provide a variety of modification and principal reduction programs totaling nearly $20 billion. The exact details are being finalized, but Moynihan said once the programs are put in place over the next few quarters, the bank might finally be able to exhale. "In hindsight we'll decide if it's watershed or not, but those programs are designed to help homeowners," Moynihan said. "These are good things. We and the rest of the industry have been trying to work this out. The question is how fast it comes. This has been a huge, huge drag for the company. This is a lot of work for a lot of people. It's difficult work because of what is involved, and we have to work through it right." Still, the cuts will continue in the near term. BofA paid $239 million in severance during the last three months of 2011, jumping from $186 million in the previous period. Chief Financial Officer Bruce Thompson said in a conference call with investors Thursday that most severance payouts occurred in the global banking and markets area. Whether the turning point is achieved remains to be seen. Revenues were down severely, dropping 15% to $94.4 billion. The bank had to shed several units in 2011, including its correspondent lending channel, and relied on billions more in capital injections from outside investors such as Warren Buffett. BofA faces reams of lawsuits from private investors in mortgages written during the bubble and currently holds more than $15 billion in repurchase reserves. The company's stock dipped below $5 per share in January before recovering slightly since. Thompson said implementation of the expense reductions will net the company "substantial cost savings" through the first half of 2012. Reductions in staff are planned to accelerate over that time. Write to Jon Prior. Follow him on Twitter @JonAPrior.