eAppraiseIT, a subsidiary of First American Corporation, in a scheme detailed in numerous e-mails, caved to pressure from Washington Mutual to use a list of preferred "Proven Appraisers" who provided inflated appraisals on homes. The e-mails also show that executives at eAppraiseIT knew their behavior was illegal, but intentionally broke the law to secure future business with WaMu.
Attorney General Andrew M. Cuomo filed suit against eAppraiseIT, one of the nation's largest real estate appraisal management companies and its parent corporation, First American, for colluding with the largest savings and loan in the country to inflate the appraisal values of homes.
"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," said Attorney General Cuomo. "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."
As First American acknowledged in its 2006 annual report, appraisal fraud can damage the entire housing market, including consumers and investors alike. Consumers are harmed because they are misled as to the value of their homes, increasing the risk of foreclosure and hindering their ability to make sound economic decisions. Investors are hurt by such fraud because it skews the value and risk of loans that are sold in financial markets.
In April 2006, eAppraiseIT began providing appraisal services for WaMu, which became eAppraiseIT's biggest client. Within weeks, WaMu began complaining to eAppraiseIT that its appraisals were not high enough. WaMu pressured eAppraiseIT to employ exclusively a new panel of appraisers that WaMu hand-selected as "Proven Appraisers." This set of appraisers was chosen by WaMu specifically because they inflated property appraisals. WaMu profited from these higher appraisals because they could close more home loans, at greater values. Over the course of their relationship, between April 2006 and October 2007, eAppraiseIT provided approximately 262,000 appraisals for WaMu.
Attorney General Cuomo’s investigation uncovered a series of e-mails between executives at eAppraiseIT, First American, and WaMu that show eAppraiseIT officials were willingly violating state and federal appraisal independence regulations to comply with WaMu's demands:
On February 22, 2007, in response to a description of the WaMu "Proven Appraiser" program as one in which "we will now assign all Wamu's work to Wamu's 'Proven Appraisers'… [and] Performance ratings to retain position as a Wamu Proven Appraiser will be based on how many come in on value," eAppraiseIT's president told senior executives at First American: "we have agreed to roll over and just do it..."
On April 4, 2007, eAppraiseIT's executive vice president stated in an e-mail to First American: "we as an AMC [Appraisal Management Company] need to retain our independence from the lender or it will look like collusion… eAppraiseIT is clearly being directed who to select. The reasoning… is bogus for many reasons including the most obvious – the proven appraisers bring in the values.”
On April 17, 2007, eAppraiseIT's president wrote an e-mail to First American explaining why its conduct was illegal: "We view this as a violation of the OCC, OTS, FDIC and USPAP influencing regulation."
E-mail evidence also shows that WaMu pressured eAppraiseIT to inflate appraisals as a condition for doing future business together. On September 27, 2006, First American's vice chairman reported that a WaMu executive told him: "if the appraisal issues are resolved and things are working well he would welcome conversations about expanding our relationship…" Attorney General Cuomo continued, "Just as my office stepped in when colleges and loan companies were profiting at students' expense, 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."
Attorney General Cuomo's lawsuit seeks to end the illegal relationship between First American and eAppraiseIT and WaMu. It also seeks penalties and disgorgement from First American and eAppraiseIT. The lawsuit alleges that First American and eAppraiseIT violated appraiser independence laws, which regulate the conduct of real estate appraisers. The lawsuit was filed in the Supreme Court of New York, New York County.
This case is being handled by Assistant Attorney General Christopher Mulvihill, under the supervision of Deputy Chief Trial Counsel Nicole Gueron and Executive Deputy Attorney General for Economic Justice Eric Corngold.
Rachel Dollar, the editor of Mortgage Fraud Blog is an attorney and Certified Mortgage Banker who handles litigation for lending institutions and secondary market investors.