NY suit claims appraiser, lender conspired

“It’s probably been going on forever,” said Terry Dunkin, the president of Appraisal Institute of professional real estate appraisers, who has been working for federal and state reforms. “It’s something that has been more prevalent in recent years with the escalating market.”

“It could be 5 percent (above true value), it could be 10 percent, it could be more,” Dunkin said. He said the inflated appraisal by a fraudulent appraiser is as high as the lender wants.

Cuomo said investors were hurt buying mortgages based on inflated property values. He added that consumers will suffer for years because they were stuck with mortgage payments based on unrealistic values for their properties, a problem that will worsen as housing sale prices drop in much of the country.

Home buyers forced into foreclosure could also end up owing more than they should, Cuomo said.

“And now you have a mountain of personal debt for the rest of your life,” he told reporters.

Driven by a hungry market for bonds backed by home loans, mortgage lenders expanded subprime lending dramatically in 2005 and 2006. In many cases, they made loans to people at low initial “teaser” rates, which reset substantially higher one to three years later at levels some borrowers couldn’t afford.

The inability of many of those borrowers to cover loan payments once they reset led to the credit crisis. More than 50 lenders have gone out of business this year, tens of thousands of people have lost their jobs in the industry, foreclosures have soared nationwide and it has become more difficult for home buyers to get home loans.

“The independence of the appraiser is essential to maintaining the integrity of the mortgage industry,” Cuomo said, citing several e-mails between the companies’ executives.

“First American and eAppraiseIT violated that independence when Washington Mutual strong-armed them into a system designed to rip off homeowners and investors alike,” he said. “

Cuomo said that as a state official he didn’t have clear jurisdiction to sue the federally chartered Washington Mutual.

Cuomo said eAppraiseIT and the parent company knew its actions were illegal, citing an April 17, 2007 e-mail from eAppraiseIT’s president to First American that said, “We view this as a violation of the OCC, OTS, FDIC and USPAP influencing regulation.”

“This is another example where the federal government is asleep at the switch,” Cuomo said.

“It runs through the entire mortgage spectrum,” he said. “Everyone is relying on the appraisal ... The appraisal is really the linchpin of the home buying transaction.”

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