Bank of America Corp. said on Thursday that it is separating its mortgage business into two divisions, with a new unit created particularly to manage and handle foreclosures, as well as discontinued loan products.

The new Legacy Asset unit will be in charge of resolving issues that involve faulty paperwork causing Bank of America to defer foreclosures in all 50 states in October, the bank said.

Also, mortgage modifications and buyback claims on bad home loans sold to investors will be handled by the legacy unit. It will be headed by Terry Laughlin, who joined the bank as an executive in its mortgage unit handling loss mitigation strategies in July 2010.

The shift is the most recent in a series of management changes since Brian Moynihan took over as CEO in January 2010.

According to the bank’s year-end financial report, Bank of America Home Loans lost $8.92 billion in 2010 mainly because of the toxic loans it received when it purchased Countrywide Financial Corp. in 2008.

Countrywide reached a disaster when many of its borrowers could not repay mortgages with adjustable rates that did not require proof of income or down payment. Bank of America has also been plagued with lawsuits and buyback claims over the investment securities backed by those loans.

Bank of America Home Loans will carry on handling new loans, as well as the servicing of loans that are up-to-date. Barbara Desoer, who has led the unit since 2008, will continue running the unit.

The bank reported $306 billion new mortgages in 2010. According to regulatory filings, it had a mortgage servicing portfolio of $2.06 billion at the end of the year.

Rates on fixed mortgages dropped for the second straight week at the same time Treasury yields are falling.

The average rate on the 30-year mortgage sank to 4.71 percent this week from 4.77 percent the preceding week, Freddie Mac said on Thursday. In November, it had reached its lowest rate of 4.17 percent in 40 years.

The 15-year loan average rate dropped to 4.08 percent from 4.13 percent. It hit also hit 3.57 percent in November, the lowest rate it has ever recorded since 1991.

After the December employment report showed weaker than expected, Treasury yields dropped which moved investors to buy safer Treasury bonds.  This increased its prices and lowered the yields. The 10-year Treasury note shows mortgage rates tend to trail behind the yields.

After the 40-year low in November, rates have been rising. However, investors moved their money out of Treasury and into stocks as they anticipated faster economic growth and higher inflation. Yields are apt to increase along with inflation fears.

The latest drop in rates have convinced some borrowers to refinance, but upcoming buyers remain cautious. On Wednesday, the Mortgage Bankers Association said that the number of homeowners looking to refinance increased last week. Yet, the number of people applying for a purchase mortgage fell a week ago.

Higher rates are just another obstacle that struggling housing market face. High unemployment rate, increasing foreclosures, and falling home prices are the other factors that are slowing down the market’s recovery.