Wells Fargo & Co. has agreed to pay $125 million to settle a lawsuit over the sale of mortgage pass-through certificates, according to court documents.

Holders of mortgage pass-through certificates are entitled to income payments from pools of mortgage loans or mortgage-backed securities.

A group of pension funds brought a proposed class action lawsuit against Wells and several underwriters in 2009, accusing the bank of misrepresenting the quality of loans in the pools.

The lawsuit originally targeted Wells Fargo-sponsored offerings from 2005 through 2007 worth over $67.5 billion, court papers show.

A federal judge in San Jose, Calif. narrowed some of the claims against Wells last year, and dismissed claims against underwriters including Goldman Sachs Group, JPMorgan Chase & Co. and UBS.

The proposed $125 million settlement with Wells Fargo, filed on Wednesday, must be approved by the court.

Wells Fargo spokesman Ancel Martinez said on Thursday that the settlement does not constitute an admission of liability or violation of any law.

The proposed settlement agreement "is intended to avoid the distraction and expense of litigation," Martinez said.

A lawyer for the plaintiffs did not immediately respond to a request for comment. (Reuters)