2nd UPDATE:NY AG Sues First American,Unit In Appraisal Probe
November 01, 2007: 01:29 PM EST
(Updated with additional details from lawsuit, companies not returning calls for comment beginning in the seventh paragraph.)
By Chad Bray
Of DOW JONES NEWSWIRES
NEW YORK -(Dow Jones)- New York Attorney General Andrew Cuomo said Thursday that his office sued First American Corp. (FAF) and its eAppraiseIT unit for allegedly colluding with Washington Mutual Inc. (WM) to use a list of preferred appraisers to inflate mortgage appraisals.
At a press conference Thursday, Cuomo said First American allegedly caved in to pressure from Washington Mutual, eAppraiseIT's largest client, to use a list of so-called "proven appraisers" who allegedly provided inflated appraisal values.
"This is a case we believe is symbolic of an industry-wide problem," Cuomo said. "By the way, it's been a long-time problem."
Eric Corngold, a senior prosecutor in Cuomo's office, said at the press conference that eAppraiseIT conducted more than a quarter of a million appraisals for Washington Mutual in the past 18 months and was paid $50 million for doing so.
The lawsuit, which was filed in New York State Supreme Court in Manhattan, is seeking to stop the practice and disgorgement of fees that First American and eAppraiseIT received for the allegedly inflated appraisals.
Washington Mutual isn't listed as a defendant. At the press conference, Cuomo said his office chose not to pursue Washington Mutual as a defendant because of jurisdictional issues since the company is a chartered federal financial institution.
Representatives from First American and Washington Mutual didn't immediately return phone calls seeking comment Thursday.
The lawsuit alleges eAppraiseIT improperly allowed Washington Mutual's loan production staff to handpick "appraisers who would bring in appraisal values high enough to permit WaMu's loans to close" and improperly permitted Washington Mutual to pressure eAppraiseIT appraisers to change appraisal values that were too low to permit loans to close.
"Instead of preserving its independence, which would have protected consumers and business customers alike, eAppraiseIT chose to protect only itself," the lawsuit said. "And senior executives at First American, though warned by eAppraiseIT's senior management of its compromised independence, nonetheless directed eAppraiseIT to continue its wrongful conduct."
The conduct constitutes a deceptive, fraudulent and illegal business practice under New York state law, the lawsuit said.
Washington Mutual retained eAppraiseIT in spring 2006 after deciding to close its internal appraisal office and terminate its staff appraisers. eAppraiseIT hired about 50 former Washington Mutual employees as staff appraisers and appraisal business managers, the lawsuit said.
Under its agreement with eAppraiseIT, Washington Mutual can challenge an appraiser's conclusions by requesting a "reconsideration of value," the lawsuit said.
"Throughout the business relationship, WaMu has frequently ordered ROVs from eAppraiseIT," the lawsuit said.
In early summer 2006, Washington Mutual's loan production staff began complaining that the eAppraiseIT appraisal values were too low, the lawsuit said.
During this period, First American was seeking additional business from Washington Mutual, which was conditioned on the success of the eAppraiseIT deal, the complaint said.
The lawsuit said eAppraiseIT eventually capitulated to Washington Mutual's demands in February 2007, with an eAppraiseIT executive allegedly telling senior management at First American in an email: "we have agreed to roll over and just do it."
-By Chad Bray, Dow Jones Newswires; 212-227-2017; chad.bray@dowjones.com
(END) Dow Jones Newswires
11-01-07 1329ET
Copyright (c) 2007 Dow Jones & Company, Inc. |
