He accuses Countrywide Financial, which Bank of America bought in 2008, of selling thousands of toxic home loans to Fannie Mae and Freddie Mac. Fannie Mae and Freddie Mac are government agencies that support the US mortgage market. Bank of America has yet to comment.
Countrywide is accused of running a trading scheme from 2007 to 2009 that was deliberately designed to process loans at high speed without checks on their quality.
\Mr Bharara said: "This lawsuit should send another clear message that reckless lending practices will not be tolerated." He added that Countrywide's practices were "spectacularly brazen in scope."
The legal action against Bank of America follows similar moves by the US government earlier this month against Wells Fargo and JP Morgan Chase. On 2 October, JP Morgan was sued for allegedly defrauding investors who lost more than $20bn on mortgage-backed securities sold by Bear Stearns.
JP Morgan, which bought the investment bank in March 2008, said the allegations related to actions at Bear Stearns prior to its takeover.
Meanwhile, on 10 October, Wells Fargo was also sued by federal authorities for alleged mortgage fraud. The US government alleges that Wells Fargo lied about the quality of mortgages it handled, leading to huge losses for the Federal Housing Administration.
Wells Fargo has denied the allegations. It will be interesting to observe who wins these suits, big business or Uncle Sam.