General Electric agrees to pay $1.5B civil penalty over subprime mortgages

General Electric has agreed to pay a $1.5 billion settlement for accounting violations related to a now-defunct business that handled subprime mortgages.

What's the story?

According to a Friday news release from the Department of Justice, the money will be used to "resolve claims involving subprime residential mortgage loans originated by WMC Mortgage (WMC), a GE subsidiary.

The DOJ explained that "WMC, GE, and their 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 (RMBS)."

The news release said that the situation with WMC subprime mortgages had gotten so bad at one point that "In 2005, a WMC quality control manager described his department as a 'toothless tiger' with inadequate resources and no authority to prevent the approval or sale of loans his department had determined were fraudulent or otherwise defective."

CNBC reported that shares of GE dropped by 0.6 percent after the announcement was made, adding that the reason the drop was so slight was that the settlement was "largely expected."

In a statement, Assistant Attorney General Jody Hunt said "As today's resolution demonstrates, the Department of Justice will continue to employ FIRREA [the Financial Institutions Reform, Recovery, and Enforcement Act of 1989] as a powerful tool for protecting our financial markets against fraud."

"This settlement contains no admission of any allegations and concludes the FIRREA investigation of WMC," a GE spokesperson told CNBC. "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."