General Electric has disclosed in a filing with the Securities and Exchange Commission that it has reserved $1.5 billion in discontinued operations during the first quarter in relation to a Department of Justice Investigation into WMC Mortgage, its exited US mortgage business.
The investigation relates to potential violations of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 by WMC and GE Capital.
The DOJ’s Civil Division initiated the investigations into WMC and its affiliates as part of an industry-wide investigation of subprime mortgages. The potential FIRREA violations arose out of the origination, purchase, or sale of residential mortgage loans between Jan. 1, 2005, and Dec. 31, 2007.
GE said it is cooperating with the investigation, providing documents and witnesses for interviews after the DOJ issued subpoenas to WMC and GE Capital. WMC and GE Capital are exploring whether a settlement can be reached. However, in case a settlement cannot be reached, GE said it believes the DOJ would initiate legal proceedings against WMC and GE Capital. WMC and GE Capital believe they would have defenses to any such lawsuit, the company said.
“Given the significant litigation activity and WMC’s continuing efforts to resolve the lawsuits involving claims made against WMC, it is difficult to assess whether future losses will be consistent with WMC’s past experience,” GE said in the filing. “Adverse changes to WMC’s assumptions supporting the reserve may result in an increase to these reserves. WMC estimates a range of reasonably possible loss from $0 to approximately $500 million over its recorded reserve at March 31, 2018.”