New York Attorney General Andrew Cuomo announced Thursday that he has filed suit against real estate appraisal company First American Corp. and its subsidiary eAppraiseIT for colluding with savings and loan giant Washington Mutual [WaMu] to inflate home values. 
Cuomo's nine-month investigation into the mortgage industry has revealed "fundamental flaws" in two areas of the business: appraisals and securitization of mortgage loans. This suit is the first action the attorney general has taken against companies involved. "This is a case we believe is indicative of an industry-wide problem," Cuomo said. The suit alleges that eAppraiseIT illegally complied with WaMu's demand that it use a list of "preferred" appraisers. Much of Cuomo's case is based on emails that appear to show that executives were aware they were breaking federal law. "The independence of the appraiser is essential to maintaining the integrity of the mortgage industry," Cuomo said. "By allowing Washington Mutual to hand-pick appraisers who inflated values, First American helped set the current mortgage crisis in motion." "We have absolutely no incentive to have appraisers inflate home values," WaMu said. "In fact, inflated appraisals are contrary to our interests." Though WaMu was not named as a defendant in the case, its shares fell 7.6% to close at $25.75 following the announcement. First American closed up 1.5% at $30.56.
Commentary: Title Insurers Are Feeling the Heat - WSJ • Rough Times for Title Insurers
Stocks to watch: FAF, WM. Competitors: FNF, LFG, STC. ETFs: IAT
