WASHINGTON — New York Attorney General Andrew Cuomo accused Washington Mutual Inc. of pressuring an appraisal firm to inflate the value of homes, and he warned that his concerns extend far beyond the Seattle thrift company.
In announcing a lawsuit Thursday against the appraiser eAppraiseIT LLC and its parent, First American Corp. of Santa Ana, Calif., Mr. Cuomo said top Wamu executives pressed for higher assessments, in knowing violation of federal and state laws that require appraisers to be independent of lenders.
Accusations of appraisal fraud had became commonplace during the housing boom, with lenders, brokers, and appraisers often seen as acting in collusion.
Though not the first such case brought against an appraisal firm, Mr. Cuomo’s was one of the most prominent, and he made it clear there could be others on the way.
“The evidence is very damning, in my opinion,” he said on a conference call with reporters. “We’re trying to make a bigger point, if you will. We believe this is a problem all across the industry.”
Mr. Cuomo, a Democrat, did not rule out further lawsuits, but he said he believes “this is the most successful trial strategy we can bring.”
The accusations brought a swift response from Wamu, which denied any knowledge of the actions taken by eAppraiseIT and said it was severing its relationship with the appraiser.
“We are surprised and disappointed by the allegations in the complaint related to eAppraiseIT,” Wamu said. “We have absolutely no incentive to have appraisers inflate home values. In fact, inflated appraisals are contrary to our interests. We use third-party appraisal companies to make sure that appraisals are objective and accurate.”
The suit is the result of a nine-month investigation and accuses the appraiser of succumbing to pressure from Wamu to boost appraisal values. The thrift company is not named as a defendant.
Ohio Attorney General Marc Dann filed a similar suit in June against two lenders, six mortgage brokerages, a broker, and an appraisal firm for improperly pressuring appraisers to inflate home values.
In a 31-page complaint filed in the New York Supreme Court, Mr. Cuomo said eAppraiseIT allowed Wamu staff members to pick appraisers who would boost a home’s value. The case relies heavily on e-mails that he said were between “senior executives” at Wamu, eAppraiseIT, and First American and suggest a conflict of interests.
In a Sept. 27, 2006, e-mail purportedly sent from an unnamed First American executive to colleagues, the executive described a conversation with the head of Wamu’s mortgage business and expressed interest in obtaining part of its tax and flood insurance business.
According to the e-mail, Wamu’s mortgage chief “said that if the appraisal issues are resolved and things are working well, he would welcome conversations about expanding our relationship, including tax and flood.”
By February, eAppraiseIT executives appeared to begin allowing Wamu to select its own appraisers, whose qualifications seemed to be determined by assessment values, Mr. Cuomo alleged.
“In short, we will now assign all Wamu’s work to Wamu’s ‘proven appraisers,’ ” Anthony Merlo, eAppraiseIT’s president, allegedly wrote in a Feb. 22 e-mail provided by Mr. Cuomo. “We will pay their appraisers whatever they demand. Performance ratings to retain position as a Wamu proven appraiser will be based on how many come in on value.”
Mr. Merlo also allegedly wrote in an e-mail sent that day, “we have agreed to roll over and just do it.”
In an April e-mail provided by Mr. Cuomo, an unnamed executive vice president at eAppraiseIT continued to warn of legal implications.
“We … need to retain our independence from the lender, or it will look like collusion,” the executive vice president wrote. “Imagine a simple mortgage broker saying he will give us the work if we use his ‘proven’ appraiser. We say no. This is very similar to that, except they are very big.”
Mr. Cuomo’s office would not release the full e-mails; excerpts were included in the complaint. The Office of Thrift Supervision would not discuss the matter.
First American released a statement late Thursday in which it said Mr. Cuomo's accusations had "no foundation in fact or law."
"We are dismayed by any impact these specious allegations may have on our company, on our many employees and on our valued customer, Washington Mutual," the company said. "The Attorney General’s allegations, largely based on a handful of e-mails that have been taken out of context, or mischaracterized, and an incomplete review of the facts, belie our record of compliance with applicable law. The program called into question today by the Attorney General has been vetted and approved by the federal regulator responsible for oversight of such programs. We welcome the opportunity to now present all the facts before an impartial third party."
The case could spark a new debate over federal preemption laws, since New York’s jurisdiction in the matter may come into question. The suit argues that the state has a responsibility to protect the “economic health and well being of those who reside or transact business within its borders.”
Mr. Cuomo said the suit is a reflection of lax regulation in Washington.
“This general issue we point to today is another example of where the federal government is asleep at the switch once again.” The OTS, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corp. — “the entire alphabet soup of acronyms are supposed to be ensuring justice,” he said. “We believe they are not.”
