By Walter Hamilton and E. Scott Reckard, Los Angeles Times Staff Writers
November 2, 2007
NEW YORK ? Yielding to pressure from a big mortgage lender, a Southern California-based appraisal company inflated the value of homes nationwide, encouraging consumers to pay too much for them or to borrow against equity they didn’t have, a government lawsuit filed Thursday alleges.
The fraud suit by New York Atty. Gen. Andrew Cuomo represents the biggest regulatory crackdown yet on the type of allegedly abusive practices that many experts believe fed the housing bubble in California and elsewhere as well as the current rising tide of foreclosures.
According to the suit, Washington Mutual Inc., one of the nation’s biggest home loan companies, hired a unit of Santa Ana-based First American Corp. to do appraisals required for mortgages, but soon became unhappy. Too many valuations, the suit says, were coming in too low to justify the loan amounts.
After Washington Mutual complained to First American, the real estate service provider’s EAppraiseIT unit let the lender, its biggest customer, choose the appraisers thought to be more likely to supply a sufficiently high number for the value of a home, the suit alleges.
The lawsuit is based on e-mails written by top executives at EAppraiseIT, who initially complained about pressure from Washington Mutual for high appraisals but ultimately acquiesced to it.
“We have agreed to roll over and just do it,” Anthony R. Merlo Jr., EAppraiseIT’s president, wrote in an e-mail to First American executives in February.
Appraisals are a key part of the home-buying process. Like the borrower’s income, property values determine the amounts that banks will lend. Low valuations can force borrowers to put up more of their own money or risk having a deal unravel.
Home appraisers are supposedly independent experts, but many have long complained that they are pressured to give sky-high valuations by mortgage brokers and lenders who collect fees based on the dollar value of loans they make.
See the full article here:
http://www.latimes.com/business/la-fi-appraise2nov02,0,64399.story?coll=la-home-business
