The office of the New York State Attorney General filed a civil lawsuit recently contending that the nation’s largest mortgage and property services corporation, its home appraisal subsidiary, and the nation’s largest savings and loan giant conspired to inflate the value of home appraisals.

The lawsuit alleged that these defendants earned higher profits for the bank but left homeowners with mortgages that have balances larger than the home’s market value. According to the complaint in a New York City court, at least 50 e-mails between executives from the mortgage and property services conglomerate, First American Corporation, its wholly owned subsidiary, eAppraiseIT, and Washington Mutual document a “raise the value” scheme.

According to the Attorney General’s office, the scheme was a response to the demands of savings and loan giant Washington Mutual. The bogus appraisals would in turn allow IT to write an increased amount of loans for more money than the collateral would justify. Attorney General Andrew Cuomo says:

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 rip off homeowners and investors alike. 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.

These loans were profitable for Washington Mutual. To carry out the scheme, Washington Mutual allegedly asked that eAppraiseIT which performs about 50,000 appraisals a month nationally  to use a “preferred list” of independent appraisers rather than appraisers from its own staff of more than 12,500. It is alleged in the complaint that their own appraisers weren’t putting the property values at levels that Washington Mutual was seeking.

First American’s title insurance and services company is the largest in this country. It’s one of several market-leading companies in the First American family. Others include Specialty Insurance, Mortgage Information, Property Information, and Risk Mitigation and Business Solutions. Currently, Washington Mutual is not a party to the civil lawsuit. However, the attorney general doesn’t have the authority to file lawsuit against a federally chartered bank. Interestingly, Washington Mutual has suspended its relationship with eAppraiseIT – at least for now.

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