WASHINGTON (Legal Newsline) – General Electric will pay a $1.5 billion civil penalty to resolve allegations regarding subprime residential mortgage loans originated through one of its subsidiaries.
The U.S. Department of Justice announced April 12 it settled a suit with General Electric (GE) over allegations that the company made misrepresentations concerning subprime loans in residential mortgage-backed securities.
A press release states that GE, its subsidiary WMC Mortgage, and their affiliates allegedly misrepresented the quality of loans being issued by WMC in addition to the internal quality and fraud controls related to the marketing and sale of residential mortgage-backed securities.
The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) states that the federal government may seek out civil penalties for this type of violation.
The Department of Justice alleges from 2005 to 2007, WMC originated more than $65 billion in mortgage loans and then sold the majority of loans to investment banks. This action by WMC allegedly did not comply with the representations made about the loans.
"Investors, including federally insured financial institutions, suffered billions of dollars in losses as a result of WMC’s fraudulent origination and sale of loans for inclusion in (residential mortgage-backed securities)," the press release states.
WMC allegedly also would re-offer certain previously rejected loans to second potential purchasers without stating that the mortgages had previously been rejected or the reasons why they had been.
In 2007, GE allegedly began to provide WMC with advice for how to sell off the remaining loans and assumed control over WMC's ability to allow repurchase requests.