A judge narrowed a $1 billion lawsuit by the U.S. against Bank of America Corp. over mortgages the bank and its Countrywide unit sold to Fannie Mae and Freddie Mac.

The U.S. sued B of A in October, intervening in a whistle-blower action originally filed by a former Countrywide executive, Edward O’Donnell. The U.S. claimed B of A and Countrywide, which it acquired in 2008, sold thousands of defective loans from 2007 to 2009 to Fannie Mae and Freddie Mac, home-mortgage finance companies now under government control.

U.S. District Judge Jed Rakoff in Manhattan dismissed claims against B of A filed under the federal False Claims Act. He allowed the case to go forward under the Financial Institutions Reform, Recovery and Enforcement Act of 1989, which was passed after the savings-and-loan crisis.

Rakoff announced his decision in a two-page order. He said he will provide his reasons in a written opinion later.

The FIRREA claims that remain allow the government to seek to recover the amounts lost by Fannie Mae and Freddie Mac in civil penalties. The government also sought to recover triple damages, under the False Claims Act, for bad loans sold by Bank of America after May 2009. Those claims were thrown out by Rakoff.

Lawrence Grayson, a spokesman for Charlotte, N.C.-based B of A, said in a statement that the company is pleased the case has been narrowed.

“We continue to believe that neither B of A nor Countrywide defrauded Fannie Mae or Freddie Mac and we will address the remaining allegations as this matter proceeds,” Grayson said.

Ellen Davis, a spokeswoman for Manhattan U.S. Attorney Preet Bharara, declined to comment on the ruling.

The government claims Countrywide initiated a program called “the Hustle” in 2007 to speed the approval of loans, lowering their standards at the same time Fannie Mae and Freddie Mac were tightening requirements for the loans they purchased.

O’Donnell, who worked at Countrywide as an executive vice president, said in his whistle-blower complaint that he “personally objected to the ‘Hustle’ on numerous occasions” because it was leading to an increasing number of early mortgage defaults.

Fannie Mae and Freddie Mac have operated under U.S. conservatorship since 2008, when they were seized amid subprime mortgage losses that pushed them toward insolvency.

B of A was among 17 financial institutions sued in September 2011 by Fannie Mae and Freddie Mac’s regulator, the Federal Housing Finance Agency, over losses on mortgage securities sold to the companies.

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