New York Attorney General sues First American\'s eappraiseIT for alleged appraisal fraud in connection with Washington Mutual

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The New York Attorney General’s office is suing First American for their alleged role in residential appraisal fraud for loans done for Washington Mutual. The charges allege that eAppraiseIT, a division of First American, knowingly and willingly inflated the value on properties associated with loans for Washington Mutual in order to maintain a ‘preferred’ status for appraisal orders and future business.

Apparently, the AG’s office has some pretty damning emails to prove it’s case.

From Market Watch:

New York Attorney General Andrew Cuomo said on Thursday that he’s suing First American Corp. to inflate the appraisal value of homes. eAppraiseIT, a unit of First American, succumbed to pressure from WaMu to use a list of preferred “Proven Appraisers” who provided inflated appraisals on homes. E-mails also show that executives at eAppraiseIT knew their behavior was illegal, but intentionally broke the law to secure future business with WaMu…

We all know that inflated appraisals are at the crux of the collateral problem we’re having right now. In fact, it would be interesting to try and guess as to what percentage of the housing correction is really just the air being taken out of inflated appraisals for refinance and cash-back purchase schemes. Appraisers are in a terrible position; do their job correctly and honestly and they get black listed for being ‘difficult’ and ‘not a team player,’ play along and they are committing fraud and are liable. So if you are honest your family doesn’t eat; and if you try to please the lenders you don’t sleep waiting for federal agents to call you about some property that is in foreclosure for $150,000 less than you appraised it for. Sweet way to earn a living. Not really.

Here’s a good example right from my neighborhood. My neighbors just refinanced their home and the appraisal came in at $670,000, sweet for them. The only problem is the home literally RIGHT ACROSS the greenbelt from them is for sale at $565,000. Now you tell me what’s wrong with that picture? Their deal is done, they’re obviously upside down, but they don’t care; they don’t plan on moving. But the lender is in a very tenuous situation to say the least. They are probably at least $100,000 upside down because, guess what, that house across the way ain’t moving at $565,000.

There’s a lot more to say on the appraisal issue, but we’ll save that for another time. Let’s just say that there is a major flaw in the appraisal system that needs to be addressed amidst all of this broker-bashing legislative chest-pounding in order to restore confidence in house values.

Hat tip to reader Don for the story. I consider this just a coming out party for the big state-led lawsuits against all aspects of the industry looking for some redress for their citizens taking it in a big way right now…

Sorry for the lack of updates today; I’ve been up in LA at a digital media conference which was fun, but left me with out my computer to blog.