early bloomers?

First American's target of suit over alleged inflated appraisals
MarkeWar on Terrorch - November 01, 2007 2:01 PM ET

SAN FRANCISCO (MarkeWar on Terrorch) -- New York state's attorney general said Thursday that his office is suing First American Corp. for allegedly "colluding" with mortgage lender Washington Mutual to inflate the appraisal value of homes.

First American's eAppraiseIT subsidiary succumbed to pressure from Washington Mutual, also known as WaMu, to use a list of preferred "Proven Appraisers" who provided inflated appraisals, according to Andrew Cuomo, New York's top law-enforcement official.

Emails show that executives at eAppraiseIT knew their behavior was illegal but went ahead in order to secure future business with WaMu, Cuomo said in a statement.

Representatives at Santa Ana, Calif.-based First American (FAF) and at WaMu (WM) didn't immediately respond to phone and email requests for comment.

"The independence of the appraiser is essential to maintaining the integrity of the mortgage industry," Cuomo said.

However, First American and eAppraiseIT "violated that independence when Washington Mutual strong-armed them into a system designed to rip off homeowners and investors alike," Cuomo alleged.

First American's shares climbed 3.7% to $31.20 on Thursday afternoon, while WaMu fell 7.5% to $25.78.

In April 2006, the suit said, eAppraiseIT began providing appraisal services for WaMu, which became the unit's biggest client.

WaMu began complaining to eAppraiseIT that its appraisals were not high enough, Cuomo's suit claimed.

WaMu profited from the higher appraisals because they could close more home loans, at greater values, according to the complaint. Between April 2006 and October 2007, eAppraiseIT provided roughly 262,000 appraisals for WaMu, it also noted.