In a scheme detailed in numerous e-mails, eAppraiseIT, a subsidiary of First American Corporation, caved to pressure from Washington Mutual to use a list of preferred “Proven Appraisers” who provided inflated appraisals on homes. The e-mails also show that executives at EA knew their behavior was illegal, but intentionally broke the law to secure future business with WaMu.

“The independence of the appraiser is essential to maintaining the integrity of the mortgage industry. First American and eAppraiseIT violated that independence when Washington Mutual strong-armed them into a system designed to rip off homeowners and investors alike,” said Attorney General Cuomo. “The blatant actions of First American and eAppraiseIT have contributed to the growing foreclosure crisis and turmoil in the housing market. By allowing Washington Mutual to hand-pick appraisers who inflated values, First American helped set the current mortgage crisis in motion.”

As First American acknowledged in its 2006 annual report, appraisal fraud can damage the entire housing market, including consumers and investors alike. Consumers are harmed because they are misled as to the value of their homes, increasing the risk of foreclosure and hindering their ability to make sound economic decisions. Investors are hurt by such fraud because it skews the value and risk of loans that are sold in financial markets.

• On February 22, 2007, in response to a description of the WaMu “Proven Appraiser” program as one in which “we will now assign all Wamu’s work to Wamu’s ‘Proven Appraisers’… [and] Performance ratings to retain position as a Wamu Proven Appraiser will be based on how many come in on value,” eAppraiseIT’s president told senior executives at First American: “we have agreed to roll over and just do it...”


• On April 4, 2007, eAppraiseIT’s executive vice president stated in an e-mail to First American: “we as an AMC [Appraisal Management Company] need to retain our independence from the lender or it will look like collusion… eAppraiseIT is clearly being directed who to select. The reasoning… is bogus for many reasons including the most obvious – the proven appraisers bring in the values.”


• On April 17, 2007, eAppraiseIT’s president wrote an e-mail to First American explaining why its conduct was illegal: “We view this as a violation of the OCC, OTS, FDIC and USPAP influencing regulation.”


• E-mail evidence also shows that WaMu pressured EA to inflate appraisals as a condition for doing future business together:
  
  On September 27, 2006, First American’s vice chairman reported that a WaMu executive told him: “if the appraisal issues are resolved and things are working well he would welcome conversations about expanding our relationship…”

Initially, eAppraiseIT employed a combination of in-house staff and third-party fee appraisers, including some “preferred appraisers” identified by WaMu, to conduct appraisals of residential property for WaMu. eAppraiseIT also hired approximately 50 former WaMu employees as staff appraisers and Appraisal Business Managers (“ABMs”) and – at WaMu’s request – gave the ABMs the authority to override and revise the values reached by third-party appraisers. One-third of eAppraiseIT’s staff appraisers are former WaMu employees, and all of the ABMs are former WaMu employees. eAppraiseIT’s President advised the leadership of First American that “we have hired and on boarded many of Wamu’s regional mangers and appraisers last week. They will be instrumental in our relational and operational success with the sales force.”

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Under contractual arrangements between WaMu and eAppraiseIT, WaMu can challenge an appraiser’s conclusions by requesting a “reconsideration of value” (ROV) when WaMu disagrees with an appraised home value set forth in an appraisal report. Practically speaking, this permits WaMu to ask eAppraiseIT to reconsider and raise the value assigned to a home. Throughout the business relationship, WaMu has frequently ordered ROVs from eAppraiseIT.