General Electric (GE) - Get General Electric Company (GE) Report agreed to pay a $1.5 billion penalty to resolve claims involving subprime residential mortgage loans from a GE subsidiary, the U.S. Justice Department said Friday.

The penalty comes under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) in which WMC Mortgage, a GE subsidiary, along with GE and its affiliates, allegedly misrepresented the quality of WMC's loans and the extent of WMC's internal quality and fraud controls connected with the marketing and sale of residential mortgage-backed securities.

"The failure to disclose material deficiencies in those loans contributed to the financial crisis," Assistant Attorney General Jody Hunt said in a statement. "As (Friday's) resolution demonstrates, the Department of Justice will continue to employ FIRREA as a powerful tool for protecting our financial markets against fraud."

A GE spokesperson said in statement that the "settlement contains no admission of any allegations and concludes the FIRREA investigation of WMC Mortgage Corporation, LLC."

"This is another step in our ongoing efforts to de-risk GE Capital," the spokesperson said. "This agreement represents a significant part of the total legacy exposure associated with WMC and we are pleased to put this matter behind us."

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General Electric Capital Corp., then the financial services unit of GE, acquired subprime residential mortgage loan originator WMC in 2004.

WMC originated more than $65 billion in mortgage loans between 2005 and 2007. WMC sold the vast majority of its loans to investment banks, which, in turn, issued and sold residential mortgage-backed securities backed by WMC loans to investors.

The government charged that the majority of the mortgage loans WMC originated and sold for inclusion in residential mortgage-backed securities in 2005-2007 didn't comply with WMC's representations about the loans, and that certain of WMC's representations were reviewed by, approved by, or made with the knowledge of personnel from GE or GECC.

"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 RMBS," the statement said.

GE shares fell 0.8% to $9.05.