GE lending unit said to be probe target Federal authorities are investigating possible fraud at General Electric Co.'s former subprime mortgage arm amid increased public pressure to hold Wall Street accountable for its role in the financial crisis. The FBI and Justice Department are looking into potentially criminal business practices at WMC Mortgage Corp. in Burbank during the home-loan boom, according to four people with knowledge of the investigation. They declined to be identified because of the sensitivity of the investigation. The government is asking whether WMC used falsified paperwork, overstated income and other tactics to push through questionable loans, two of the people said. They said the probe appears to be focusing on whether senior managers condoned improper practices that enabled fraudulent loans to be sold to investors. "It's mostly about: Did they knowingly sell mortgages into the secondary market that they knew were fraudulent?" said one person with direct knowledge of the investigation. A spokesman for the FBI declined to comment, and the Justice Department did not return telephone calls. Russell Wilkerson, a spokesman for GE, said the company "as a matter of practice" cooperates with law enforcement on inquiries but does not comment on specific investigations. However, he said any allegation that WMC sold fraudulent loans to investors was false. GE acquired WMC near the height of the mortgage boom in 2004, giving it a major presence in the growing subprime lending market. But by 2007 the California lender was hemorrhaging money and slicing into the conglomerate's earnings. The unit was shut down as the housing market buckled. Since then investors have launched a string of civil lawsuits, and federal authorities began a criminal inquiry. The FBI's San Francisco office indicated that it has been looking into WMC's business practices for nearly two years, according to one of the people who has knowledge of the investigation. The bureau has examined individual WMC loan files and has begun contacting former employees about how the lender handled the sales of mortgages to investors, this person said. WMC recorded the second-highest number of foreclosures on higher-risk mortgages in America's 10 hardest-hit real estate zones, according to the Treasury Department. The company was second only to now-defunct subprime lender New Century Financial Corp. of Irvine. For instance, the report said WMC's foreclosure rate topped 40% in hard-hit areas such as Merced, Modesto and Stockton. The FBI and Justice Department had little success in prosecuting mortgage executives after launching investigations in 2008. But there has been increasing pressure, from groups including labor unions and Occupy Wall Street, to find culprits for the devastating housing crash that triggered the financial crisis. Subprime lenders have long been in the cross hairs. They issued hundreds of billions of dollars in mortgages to people with shaky credit, then bundled the loans for sale to investors as highly rated securities. When the borrowers couldn't pay their mortgages, the investments collapsed - leaving investors and lenders saddled with toxic debt. Lawsuits in state and federal courts have charged that WMC and GE misled investors and other parties in the sale of mortgages and mortgage-backed securities. An investor lawsuit in federal court, for example, said that a $550-million pool of mortgages originated by WMC and another subprime lender, EquiFirst Corp., included numerous examples of fraud. The lawsuit said a review found inflated borrower incomes and other "material breaches" in 75% of the loan files sampled. GE said it would "vigorously defend" itself, adding that the complaint is "based upon a flawed statistical sampling of a small number of loans." "WMC had in place processes to detect and report fraudulent activity," Wilkerson, the GE spokesman, said. When any allegations of misconduct at WMC were raised to GE, they were investigated and given an appropriate response by WMC, including the termination of employees. WMC was a wholesale lender that issued loans through a network of independent mortgage brokers, making it a less-familiar name than giant retailers such as Ameriquest Mortgage Co. and Countrywide Financial Corp. Still, in the 3 1/2 years under GE's ownership, the unit issued roughly $110 billion in risky home loans. Federal prosecutors in Los Angeles have said they investigated three prominent high-risk home lenders in Southern California that melted down - Countrywide, New Century and IndyMac Bancorp - without finding clear evidence that top executives intended to defraud anyone. No criminal charges were filed.