New York Attorney General Andrew Cuomo said today that a major real estate appraisal company conspired with one of the largest mortgage lenders in the nation to inflate the appraised value of homes.

Cuomo is suing First American Corp. and its subsidiary eAppraiseIT, accusing the companies of caving to pressure from Washington Mutual to use a list of preferred “proven appraisers” who he alleges provided inflated property appraisals.

First America in a statement issued this afternoon said the Attorney General’s lawsuit “has no foundation in fact or law.”

“The Attorney General’s allegations, largely based on a handful of e-mails that have been taken out of context, or mischaracterized, and an incomplete review of the facts, belie our record of compliance with applicable law,” the company said. “The program called into question today by the Attorney General has been vetted and approved by the federal regulator responsible for oversight of such programs.”

Appraisal fraud can damage the entire housing market by misleading consumers about the value of their homes and in some cases increasing the risk of foreclosure, experts say. Loans made on homes with inflated values also can hurt investors who buy securities backed by these loans, whose value and risk are misrepresented.

EAppraiseIT has acknowledged that appraiser pressure and fraud is a growing concern in the industry and in October announced its participation in an upcoming event that aims to discuss solutions to the problem.

Appraisers have complained in congressional testimony that they are often pressured by lenders to hit predetermined property values as a condition of continuing business with certain mortgage lenders.

“The independence of the appraiser is essential to maintaining the integrity of the mortgage industry,” Cuomo said in today’s announcement.

“First American and eAppraiseIT violated that independence when Washington Mutual strong-armed them into a system designed to rip off homeowners and investors alike,” he said, citing e-mails his investigation uncovered.

“The blatant actions of First American and eAppraiseIT have contributed to the growing foreclosure crisis and turmoil in the housing market,” Cuomo said. “By allowing Washington Mutual to hand-pick appraisers who inflated values, First American helped set the current mortgage crisis in motion.”

A copy of the complaint can be found at the attorney general’s Web site.


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