New York Attorney General Andrew M. Cuomo announced Thursday that he is suing eAppraiseIT, one of the nation's largest real estate appraisal management companies, and its parent corporation, First American Corp., for colluding with Washington Mutual to inflate the appraisal values of homes. The lawsuit was filed in the Supreme Court of New York, New York County.
The collusion, according to Cuomo, may have been a contributing factor in the nation's subprime mortgage crisis.
"The independence of the appraiser is essential to maintaining the integrity of the mortgage industry. First American and eAppraiseIT violated that independence when Washington Mutual strong-armed them into a system designed to ripoff homeowners and investors alike," Cuomo said in a press statement. "The blatant actions of First American and eAppraiseIT have contributed to the growing foreclosure crisis and turmoil in the housing market. By allowing Washington Mutual to hand-pick appraisers who inflated values, First American helped set the current mortgage crisis in motion."
First American says the suit "has no foundation in fact or law" and says it will challenge the allegations. The company declined to comment about the lawsuit, instead sending BUILDER Online the following statement:
"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 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 statement continues, "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. In that presentation, we will demonstrate the appropriateness of our appraisal practices in the state of New York, and we will vigorously defend the reputation of Washington Mutual and the reputation we have labored more than 100 years to build."
In reaction to Cuomo's lawsuit, Washington Mutual released the following statement:
"We are surprised and disappointed by the allegations in the complaint related to eAppraiseIT. We are suspending our relationship with eAppraiseIT until we can further investigate the situation. 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. We have no further comment at this time."
Cuomo's investigation uncovered a series of e-mails between executives at eAppraiseIT, First American, and Washington Mutual that show eAppraiseIT officials were willingly violating state and federal appraisal independence regulations to comply with Washington Mutual's demands.
According to Cuomo's investigation, eAppraiseIT began providing appraisal services to Washington Mutual in April 2006. Within weeks, Washington Mutual began complaining to eAppraiseIT that its appraisals were not high enough and allegedly pressured eAppraiseIT to employ exclusively a new panel of appraisers that Washington Mutual hand-selected. These particular appraisers were chosen by Washington Mutual because they inflated property appraisals, which would allow Washington Mutual to close more home loans, at greater values. Over the course of their relationship, eAppraiseIT provided approximately 262,000 appraisals for Washington Mutual.
Cuomo's lawsuit seeks to end the relationship between First American and eAppraiseIT and Washington Mutual. It will also seek penalties and disgorgement from First American and eAppraiseIT. In addition, the suit alleges that First American and eAppraiseIT violated appraiser independence laws, which regulate the conduct of real estate appraisers.
"This lawsuit and my ongoing investigation into the mortgage industry should send a clear message: Companies must play by the rules or they will have to account for their misdeeds," Cuomo says.
Click here to view a copy of the complaint.
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