DOJ: GE to Pay $1.5 Billion Civil Penalty to Resolve Claims Involving Subprime Mortgage Loans

By Michael Dabaie

General Electric Co. (GE) agreed to pay a civil penalty of $1.5 billion to resolve claims involving subprime residential mortgage loans originated by WMC Mortgage, the U.S. Justice Department said Friday.

General Electric Capital Corp. acquired WMC, a subprime residential mortgage loan originator, in 2004, the Justice Department said.

The Justice Department said WMC, GE and affiliates allegedly misrepresented the quality of WMC's loans and the extent of WMC's internal quality and fraud controls in connection with the marketing and sale of residential mortgage-backed securities.

The settlement contains no admission of any allegations and concludes the Financial Institutions Reform, Recovery, and Enforcement Act investigation of WMC, a GE spokesperson said. "This is another step in our ongoing efforts to de-risk GE Capital. This agreement represents a significant part of the total legacy exposure associated with WMC and we are pleased to put this matter behind us," GE said.

GE, which had disclosed the tentative agreement in January, last year had recorded a $1.5 billion reserve in connection with the federal investigation.

The Justice Department alleged that in 2005 to 2007, WMC attempted to increase its profits and meet profit goals by increasing originations. WMC loan analysts responsible for underwriting mortgage loans were encouraged to approve loans in order to meet volume targets, even where the loan applications didn't meet the criteria outlined in WMC's published underwriting guidelines, and received additional compensation based on the number of mortgages they approved, DOJ said. At the same time, there were significant deficiencies with respect to WMC's quality control, the Justice Department said.

Write to Michael Dabaie at michael.dabaie@wsj.com

(END) Dow Jones Newswires

April 12, 2019 13:23 ET (17:23 GMT)

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