In one of the few government cases to accuse banks of wrongdoing in the housing crisis, a residential appraiser testified that he was dropped by Washington Mutual during the housing boom because he didn’t inflate home values, Reuters reported June 20.
Alfred Lama said he suddenly stopped receiving assignments from appraisal firm eAppraiseIT in April 2007. When he inquired as to the reason, he was told that his name was not on a list of appraisers provided by WaMu’s sales office. “The sales people were going to have certain control. If you weren’t making the numbers for the loans, you weren’t going to get work,” Lama testified, Reuters reported.
Lama was testifying in state court June 19 and 20 in a case initiated by New York Attorney General Eric Schneiderman who alleged that eAppraiseIT and its former parent company, First American Corporation, succumbed to pressure from WaMu to inflate home appraisals, Reuters reported.
Homes that were appraised for more than their value enabled mortgage companies to issue bigger loans, which is among the causes cited by experts for the housing bubble and subsequent financial crisis.
At the time, eAppraiseIT was the appraisal management unit of real estate services company First American Corporation. First American has since divided into two companies; First American Financial Corporation and CoreLogic Inc.; eAppraiseIT currently is a unit of CoreLogic.
According to Reuters, Lama testified that he performed appraisals for WaMu, eAppraiseIT’s largest client, for more than 10 years, and that between July 2005 and July 2006 alone he completed more than 350 appraisals.
Appraisal management companies are supposed to provide a buffer between bank loan employees and individual appraisers to curtail pressure or conflicts of interest, according to documents filed in the case, Reuters reported.
However, eAppraiseIT hired former WaMu staff and provided some authority to resolve situations when appraised values were lower than the purchase price, the documents showed, Reuters reported.
Court papers also stated that WaMu loan originators allegedly pressured appraisers to modify valuations upward, and in Feb. 2007 eAppraiseIT allegedly gave in to WaMu’s demand to use appraisers chosen by the bank’s loan employees.
“The sales people finally got their way at WaMu,” witness Sabina Senorans, a WaMu sales office staff member wrote April 27, 2007, in an email that was placed into evidence, Reuters reported. “The appraisal list that eAppraiseIT…is using has been totally scrubbed. But instead of keeping good appraisers, they went for BADddd [sic] ones.”
According to Reuters, Schneiderman alleges that eAppraiseIT initially resisted pressure from WaMu but then agreed to “roll over,” according to an email from former eAppraiseIT President Anthony Merlo to First American.
Patrick Smith, an attorney for eAppraiseIT, stated that every appraisal was completed in accordance with professional standards. “The state will be unable to prove that a single appraisal in this case was either improperly prepared or in any way inflated,” Smith said during a break in the trial, Reuters reported.
According to Reuters, First American tried to dismiss the case arguing that only federal law governs appraisals. In late 2011, however, New York state’s highest court ruled that the state could pursue the lawsuit.
Washington Mutual failed in September 2008 due to significant losses from billions of dollars of risky homes. JPMorgan Chase bought its lending business, Reuters reported.
The case is People of the State of New York v. First American Corp., New York state Supreme Court, New York County, No. 07-406796.
Republished from Appraisal Institute Website