While Washington Mutual (WM) isn’t a defendant, the action brought Thursday morning by New York State attorney general Andrew Cuomo against First American Corp (FAF) and its eAppraiseIT subsidiary is as much an indictment of the nation’s largest savings and loan as it is of the appraisers who allegedly bent to its demands for higher residential property valuations.
The case—replete with incriminatory emails—is the first alleging what amounts to systemic corruption by leading players in the valuation process, and is certain to result in close scrutiny of FAF’s activity in other states, and federal regulators’ already close interest in the games that WaMu has, like so many of its peers, played over the last few years. The alleged valuation fraud was continuing until at least a few months ago.
Curiously, FAF was up much of the day, by as much as almost 10 percent, even after reporting a 49 percent decline in third quarter profits, attributed to a decline in title insurance revenue, before the open. Two things:
- WaMu has suspended its relationship with eAppraiseIT until it “can further investigate the situation.” Probably with lots of uninvited regulatory assistance. And
- WaMu was not “crushed” by the Cuomo allegations, as some reported. Its 7.6 percent decline on the day was in line with other similarly-situated institutions including Countrwide (CFC) (down just over seven percent) and Citi (C), down 6.9 percent.
NYAG alleges conspiracy to inflate real estate values
WaMu demanded appraisers who inflated property values
Press release Nov. 1 2007
New York v. First American Corp. et al
Complaint Nov. 1 2007
Disclosure: Positions: Short WM, FAF.
Long: FDIC-insured WaMu checking account, CDs (at interest rates only marginally below those being offered by certain other similarly desperate, and extremely dodgy, institutions).
