General Electric revealed Thursday that it reached a tentative agreement with the Department of Justice that would see GE pay a fine of $1.5 billion for the lending activities of its shuttered subprime lending unit, WMC Mortgage.
Last year, GE disclosed that it booked a reserve of $1.5 billion that may be used as a settlement with the DOJ over the company’s subprime lending from 2005 through 2007.
And Thursday, GE disclosed in its fourth quarter earnings release that the company reached an “agreement in principle” with the DOJ to pay a civil penalty of $1.5 billion, the same amount it previously reserved for a settlement.
When GE first disclosed that it booked the reserve amount, the company said that settlement would stem from an investigation into WMC’s mortgage business that the DOJ launched in late 2015.
“In December 2015, we learned that, as part of continuing industry-wide investigation of subprime mortgages, the Civil Division of the U.S. Department of Justice is investigating potential violations of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 by WMC and its affiliates arising out of the origination, purchase or sale of residential mortgage loans between January 1, 2005 and December 31, 2007,” GE said last year in a filing with the Securities and Exchange Commission.
GE got into the subprime lending business at the height of the boom, buying WMC in 2004. GE got out of the subprime business in 2007, selling off WMC after the bubble burst.
According to GE, the DOJ claimed last year that WMC and GE Capital violated FIRREA rules in connection with the lender’s origination and sale of subprime mortgage loans in 2006 and 2007.
Therefore, GE said that it was exploring whether an “acceptable settlement” could be reached in this matter and as part of that exploration, GE recorded a $1.5 billion reserve to cover the potential settlement, leading to this proposed settlement.
One note of caution though: The DOJ has not released any details on the settlement agreement, and GE said that it merely reached an “agreement in principle,” so it is possible that the settlement could fall apart or change. But it’s likely that at this point that a settlement will come to fruition.
So, more than a decade later, it appears that GE may finally be close to putting WMC completely in its past. It’ll just cost the company $1.5 billion to do so.