ALBANY, N.Y. - New York Attorney General Andrew Cuomo said Thursday a major real estate appraisal company colluded with the nation’s largest savings and loan companies to inflate the values of homes nationwide, contributing to the subprime mortgage crisis.

“This is a case we believe is indicative of an industrywide problem,” Cuomo said in a news conference.

Cuomo announced the civil lawsuit against eAppraiseIT that accuses the First American Corp. subsidiary of caving in to pressure from Washington Mutual Inc. to use a list of “proven appraisers” who he claims inflated home appraisals.

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He also released e-mails that he said show executives were aware they were violating federal regulations. The lawsuit filed in state Supreme Court in Manhattan seeks to stop the practice, recover profits and assess penalties.

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

Washington Mutual said Thursday it is suspending its relationship with eAppraiseIT and that it plans to further investigate the situation.

“We have absolutely no incentive to have appraisers inflate home values,” Washington Mutual said in a release. “We use third-party appraisal companies to make sure that appraisals are objective and accurate.”

First American said the lawsuit against its subsidiary “has no foundation in fact or law” and called Cuomo’s accusations “specious.”

“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 in a prepared statement. “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.”

Washington Mutual shares slid $2.13, or 7.6 percent, to close at $25.75 on a day when the stock market as a whole, and financial company stocks in particular, stumbled.

First American shares gained 40 cents to $30.50.

About 265,000 loans to individuals and families over 18 months were subject to the inflated assessments, according to Cuomo. The amount the assessments exceeded true values isn’t detailed in the lawsuit. But the e-mails indicate an early proposal would have increased assessments “5 percent with a cap of $50,000 if it is fully justified,” according to Cuomo. That plan was rejected for the list of “proven appraisers.”

An April 26, 2007 e-mail from eAppraiseIT’s president to First American stated: “Sales is the driving force behind the Proven Appraiser List (PAL) which is questionable from a regulatory perspective ... We feel our reputation in the industry is being tarnished by the implementation of the Proven List since Production selects the appraiser.”

CONTINUED: “It’s probably been going on forever”

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