November 17, 2007, 07:00:00AM. By Heidi Turner

Email

New York, NY: Washington Mutual faces a class action lawsuit alleging the company committed securities fraud by over-inflating home appraisals while also inflating prices. The lawsuit follows a complaint filed by the New York Attorney General's office that names Washington Mutual as pressuring other companies to provide inflated home appraisals.

The lawsuit, which was filed on behalf of investors, states, "WaMu [Washington Mutual] told investors in mid-October 2007 that the company had suffered a 52-percent drop in net income during the third quarter of 2007 and would have to set aside up to $1.3 billion in the fourth quarter of 2007 to cover its losses. These write downs were caused, at least in part, by the impairment of loan assets that were based on the inflated appraisals fraudulently orchestrated by WaMu and eAppraiseIT."

The Attorney General's office announced in early November that it was investigating Washington Mutual for colluding to inflate the appraisal values of homes. According to a release from the Attorney General's office, numerous emails at eAppraiseIT showed that the company's executives knew that such collusion was illegal but broke the law to secure business with Washington Mutual. The investigation focuses on whether or not Washington Mutual put pressure on eAppraiseIT to use a list of "Proven Appraisers" who would provide inflated home appraisals.

In making his announcement, Attorney General Andrew M. Cuomo said, "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."

From April 2006 to October 2007, eAppraiseIT supplied Washington Mutual with approximately 262,000 appraisals. Reviews of nine appraisals on New York properties found inflated appraisals in every case. The appraisals were inflated from between $5,000 and $720,000.

Appraisal fraud hurts both consumers and investors. Consumers are victimized because they are misled about the value of their homes, which can increase their risk of foreclosure. Investors are affected because appraisal fraud distorts the value and risk of loans sold in financial markets.

According to the Attorney General Cuomo, Washington Mutual profited from higher appraisals because it allowed the company to close more home loans at greater values. He cites a number of emails involving Washington Mutual, eAppraiseIT and First American (parent company to eAppraiseIT) as proof of collusion. Included in this is an email that allegedly shows Washington Mutual pressured eAppraiseIT to inflate its home appraisals as a condition for doing future business together and an email from eAppraiseIT to First American, in response to Washington Mutual's "Proven Appraiser" program stating, "we have agreed to roll over and just do it..."

In response to the Attorney General's announcement, Washington Mutual released a statement that it would defend itself from all "unfounded allegations and lawsuits." The company further stated that it outsources all of its appraisals to two national vendors who use licensed appraisers.

Appraisal fraud is a serious crime that affects hundreds of thousands of consumers and investors. Homeowners are now left with homes that are worth far less than they were led to believe and face an increased risk of foreclosure. Companies who participate in appraisal fraud must be held accountable for their actions.

READ ABOUT THIS LAWSUIT  or  MORE LEGAL NEWS ARTICLES

LawyersandSettlements.com - A trusted, independent legal news provider bringing quality news and information on all legal cases and lawsuits filed in United States of America to its readers since 2002. Over 250,000 legal help requests including Financial Cases have been forwarded to lawyers all across to the country.