From the NY Times:
New York Says Appraiser Inflated Value of Homes
The New York attorney general, Andrew M. Cuomo, accused an appraisal company yesterday of inflating the value of homes under pressure from Washington Mutual, one of the nation’s largest mortgage lenders.
The case, filed in New York Supreme Court in Manhattan, accuses a subsidiary of the First American Corporation of defrauding homeowners and investors who bought securities backed by loans that were underwritten with the appraisals it conducted.
The case centers on a central tenet of mortgage lending — determining the value of homes that secure loans. It is an area that many housing specialists have said was rife with abuse and conflicts of interest. The lawsuit also signals that Mr. Cuomo, who was secretary of Housing and Urban Development in the Clinton administration, intends to move as aggressively against the mortgage industry as he has done with college loan providers.
In a telephone interview yesterday, Mr. Cuomo said investigators had spent nine months interviewing hundreds of mortgage industry executives and poring over millions of documents obtained through subpoenas.
“This is the opening chapter of the story, and we have some other points that we are going to make in the coming weeks,” he said, adding that he expects other cases to touch on the secondary market where mortgages are securitized by Wall Street banks.
“We just don’t bring individual cases,” Mr. Cuomo said. “We try to find cases that point to a systemic flaw in the industry”
…
Mr. Cuomo’s case is built on e-mail messages obtained through a subpoena to First American. According to the complaint, the messages show that executives at eAppraiseIT initially resisted the pressure from Washington Mutual to raise the values of the appraisals it was conducting for the lender in early 2006. The loans in question were largely used to refinance mortgages and take equity out of homes. Higher appraisals would allow a lender to make bigger loans and earn greater returns when selling them to investors.First American relented when Washington Mutual threatened to take business away, the messages cited in the complaint appear to suggest. The suit also accuses the thrift of offering to give other First American units more business if eAppraiseIT used appraisers that, the attorney general claims, would provide higher appraisals so more money could be lent out than was warranted by the property’s value.
In an e-mail message sent Feb. 22, according to the complaint, the president of eAppraiseIT, Anthony R. Merlo Jr., told other executives: “we have agreed to roll over and just do it.” The complaint says that he was referring to the pressure from Washington Mutual to use appraisers it preferred.