General Electric is moving closer to putting its failed attempt to capitalize on the subprime lending boom into its rearview mirror.
Earlier this month, GE agreed to pay a fine of $1.5 billion as part of a settlement with the Department of Justice over the pre-crisis lending activities of the company’s shuttered subprime lending unit, WMC Mortgage.
And this week, WMC Mortgage filed for Chapter 11 bankruptcy.
GE got into subprime mortgage lending at the height of the craze, buying WMC in 2004. WMC originated more than $65 billion in mortgages between 2005 and 2007.
But after the bubble burst, GE got out of the subprime business, selling off WMC in 2007.
GE has been dealing with the ghost of WMC ever since, eventually leading to the $1.5 billion fine, which the company actually paid to the DOJ on April 18, 2019.
The DOJ claimed that WMC allegedly misrepresented the quality of the “majority” of its loans, which were sold to investors as part of residential mortgage-backed securities.
With the billion-dollar fine now paid, WMC filed for Chapter 11 bankruptcy this week, citing its “limited cash on hand,” its “inability to receive ongoing financial support” from GE Capital to resolve other outstanding claims against the company, and the “the protections and finality” Chapter 11 proceedings provide.
According to the company’s bankruptcy filings, the company is facing a lawsuit involving a RMBS trust that included approximately 5,000 mortgages originated by WMC.
The lawsuit claims that WMC “breached numerous R&Ws, failed to provide proper notification regarding the breaches of the R&Ws, and failed to repurchase the breaching loans despite due demand.”
The lawsuit seeks approximately $980 million in damages.
The suit went to trial last year, and the parties eventually ended up in settlement discussions. According to WMC’s bankruptcy filings, the parties reached a tentative settlement agreement that would see WMC pay out $198 million to the certificate holders.
According to WMC, the trustee has until June 3, 2019, to either accept or reject the settlement offer.
That lawsuit, according to the filing, “consumed a substantial amount of (WMC’s) time, focus, and limited resources” over the last few years.
Beyond that lawsuit, WMC has settled 13 different RMBS actions over the last decade for approximately $870 million total.
GE bought WMC for approximately $645.3 million, sold it for $117 million, and has paid out approximately $2 billion in fines and settlements since then.
And now, WMC is declaring bankruptcy, citing assets between $1 million and $10 million and liabilities between $100 million and $500 million.