Monday, November 05, 2007

NY AG Files Suit Against First American Corp & eAppraiseIT

eAppraiseIT, a subsidiary of First American Corporation, in a scheme detailed in numerous e-mails, caved to pressure from Washington Mutual to use a list of preferred “Proven Appraisers” who provided inflated appraisals on homes.  The e-mails also show that executives at eAppraiseIT knew their behavior was illegal, but intentionally broke the law to secure future business with WaMu. 

Attorney General Andrew M. Cuomo filed suit against eAppraiseIT, one of the nation’s largest real estate appraisal management companies and its parent corporation, First American, for colluding with the largest savings and loan in the country to inflate the appraisal values of homes. 

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

As First American acknowledged in its 2006 annual report, appraisal fraud can damage the entire housing market, including consumers and investors alike.  Consumers are harmed because they are misled as to the value of their homes, increasing the risk of foreclosure and hindering their ability to make sound economic decisions.  Investors are hurt by such fraud because it skews the value and risk of loans that are sold in financial markets.

In April 2006, eAppraiseIT began providing appraisal services for WaMu, which became eAppraiseIT‘s biggest client.  Within weeks, WaMu began complaining to eAppraiseIT that its appraisals were not high enough.  WaMu pressured eAppraiseIT to employ exclusively a new panel of appraisers that WaMu hand-selected as “Proven Appraisers.” This set of appraisers was chosen by WaMu specifically because they inflated property appraisals.  WaMu profited from these higher appraisals because they could close more home loans, at greater values.  Over the course of their relationship, between April 2006 and October 2007, eAppraiseIT provided approximately 262,000 appraisals for WaMu.

Attorney General Cuomo’s investigation uncovered a series of e-mails between executives at eAppraiseIT, First American, and WaMu that show eAppraiseIT officials were willingly violating state and federal appraisal independence regulations to comply with WaMu‘s demands:

On February 22, 2007, in response to a description of the WaMu “Proven Appraiser” program as one in which “we will now assign all Wamu‘s work to Wamu‘s ‘Proven Appraisers’… [and] Performance ratings to retain position as a Wamu Proven Appraiser will be based on how many come in on value,” eAppraiseIT‘s president told senior executives at First American: “we have agreed to roll over and just do it...”

On April 4, 2007, eAppraiseIT‘s executive vice president stated in an e-mail to First American: “we as an AMC [Appraisal Management Company] need to retain our independence from the lender or it will look like collusion… eAppraiseIT is clearly being directed who to select.  The reasoning… is bogus for many reasons including the most obvious – the proven appraisers bring in the values.”

On April 17, 2007, eAppraiseIT‘s president wrote an e-mail to First American explaining why its conduct was illegal: “We view this as a violation of the OCC, OTS, FDIC and USPAP influencing regulation.”

E-mail evidence also shows that WaMu pressured eAppraiseIT to inflate appraisals as a condition for doing future business together.  On September 27, 2006, First American‘s vice chairman reported that a WaMu executive told him: “if the appraisal issues are resolved and things are working well he would welcome conversations about expanding our relationship…” Attorney General Cuomo continued, “Just as my office stepped in when colleges and loan companies were profiting at students’ expense, this lawsuit and my ongoing investigation into the mortgage industry should send a clear message: companies must play by the rules or they will have to account for their misdeeds.”

Attorney General Cuomo’s lawsuit seeks to end the illegal relationship between First American and eAppraiseIT and WaMu.  It also seeks penalties and disgorgement from First American and eAppraiseIT.  The lawsuit alleges that First American and eAppraiseIT violated appraiser independence laws, which regulate the conduct of real estate appraisers.  The lawsuit was filed in the Supreme Court of New York, New York County.

This case is being handled by Assistant Attorney General Christopher Mulvihill, under the supervision of Deputy Chief Trial Counsel Nicole Gueron and Executive Deputy Attorney General for Economic Justice Eric Corngold.

mortgage fraud

1. Where is the liability of WaMu? If this was collusion, WaMu is just as much to blame and should be responsible for money fines/damages.  In my experience on the closing side, the big banks dictate the terms of every real estate transaction and hold everyone by their balls.  Either “roll over” or you don’t get the business and cannot make a living.  Yes, the appraiser is at fault.  But until the big banks are punished, this will continue.  Apparently, the NY AG does not have the guts to go after the real vilian.

   Posted by  on  11/05  at  07:14 AM

2. Hopefully Countrywide and Landsafe are next.

   Posted by  on  11/05  at  10:23 AM

3. There are many of us “good” folks in the market who have not bowed to pressure from real estate agents, borrowers or wholesale lenders.  Woe is the appraiser(s) who bowed to this pressure and shame on them, HOWEVER, how is it that WaMU comes out of this pristeen?  I am still unclear who is the whistle blower and if it was WaMu, is the lesson “participate, participate participate, uh oh-looks like we may get caught so let’be the first to tattle-tale and watch the appraisers get prosecuted”? Why is big bank being protected over and over and not answering for their part in their shameful part of the wrongdoing?  Do we need more agressive AGs, or should we be asking, what is in it for the AGs who don’t prosecute all involved?

   Posted by  on  11/05  at  12:47 PM

4. Having had a 25 yr career as a residential appraiser,the solution to the problem is simple. Assign appraisers randomly and anonymously,so no cozy and incestuos relationships develop. Apprasiers are NOT supposed to be “part of the deal” but almost always are and it is “damned if you do,damned if you dont"and feel pressured every time you do work.

   Posted by  on  11/06  at  11:12 PM

5. Larry’s comments are Marxist at worst, misguided at best. So what government agency would “dole out” appraisals under that solution? Appraisers are in BUSINESS. Business needs an incentive to innovate and create a better and higher quality product. What’s the incentive for a real estate appraiser to provide faster turn times, better technology, more detailed reports, etc. if they just get their “allocation” of appraisals from some government agency each month? I got into this business because it was a BUSINESS and to provide a quality product, not to be a paper-pusher as a defacto employee of a government agency. Solutions need to be aimed at giving REAL teeth to any abuse of the appraisal ordering function - the “fake insulation” from semi-independent AMC’s owned by banks needs to end. Feeling pressure is fine - I don’t mind pressure. But I mind not having any recourse when that pressure affects my business.

   Posted by  on  11/07  at  07:21 AM

6. WAMU’s punishment will be taking back the faulty loans and swallowing foreclosures, in addition to the negative press associated with their role in this mess. Probably not enough. In addition, will Bank of America be next? Their past association with First American and current deal with Homefocus has lead to questionable practices as well. Could the worm finally be turning? It would seem we need an AG with enough power to step up to the plate against the source of the pressure as well as against the parties that bowed to the pressure.

   Posted by  on  11/07  at  08:10 AM

7. Here we go again. Nothing happens to the Criminals. I’m one of those Appraiser’s that won’t roll over. Well guess what? I don’t ever get anymore work once I don’t “Make the deal work” for any of these banks, loan officers, brokers, realtors. The State Regulatory agencies have their head you know where and have no clue how to fix it. Laws, laws, more legislation. Great, I hope it makes them feel much better, they look great in the photos but they don’t even enforce the ones already on the books. Fill out a complaint and jump through all their hoops and six months later let me know if anyone has even contacted you let alone did anything. I understand money runs the show, and we need it too. Don’t be naive to believe the poor are ever going to make much possible in your life but for heavens sake can they at least play by the rules they made? Does anyone really belive Kenny “Boy” Lay is really dead.

   Posted by  on  11/07  at  08:55 AM

8. Watershed,
   You have asked where the responsibility is regarding WaMu.  Do not believe everything you see in the media.  NY Cuomo is barking up the wrong tree.  The resonsibility lies strictly with eAppraiseIt and other AMCs (appraisal management companies) who hire appraisers based on who will work for the lowest fee, thus improving the profit margin for the AMCs.  The AMCs get a standard fee.  The lower they can get the appraiser to work for, the higher their margin.  When you hire an appraiser at up to a 50% discount, you get a crappy report from a crappy appraiser.  This is the rub.  WaMu and other lenders require quality work from appraisers who bring values in at what the market indicates.  If WaMu or another lender says to an AMC, “Your values are too low,” it is not because they want values pumped up or inflated, it is because they want proper values at what the market indicates, not low-balled by some crappy appraisers.  Appraisers who work at such low fees have no reason to do quality work.  Take this to the bank (no pun intended), this is what really occurred here. WaMu was then forced to establish a list of appraisers who they considered do quality work.  Every lender has an approved list.  Crappy appraisals cause headaches and lost clientel.  They require additional review, thus costing a lender extra money for no reason.  When they say it is against their interest to have inflated appraisals, that is true.  Do you know what is costs to foreclose on a home, or buy back a bad loan package?

   Posted by  on  11/07  at  10:57 AM

9. I have to disagree with Larry’s comments.  Assigning appraiser’s randomly smacks of anti-capitalism, taking away incentives to give better turn times and quality appraisal costomer service.  What is the solution is to serverly prosecute appraisers and lenders who work outside the ethical standards.

   Posted by  on  11/07  at  01:22 PM

10. It’s unfortunate that the Appraisers are the only ones being punished for this bad deed. The Lender is just as reponsible for this wrong doing as the Appraiser was. The industry is looking for someone to blame.I worked for several of the BIG LENDERS and they all knew that there was fraud in the Appraisal, Credit and Applications and they elected to turn the other cheek and know they are looking for someone to blame. All this BIG LENDERS had a Quality Control Depts and Underwriters SHOUTING for years that the fraud was out of control, but there sales personal and the company profits from these bad loans were to GOOD to stop the wrong deed. A THE GREED FROM THESE LOANS HAVE CAUSE SEVERAL GOOD MORTGAGE INDIVIDUALS THERE LIVELIHOOD.

    Posted by  on  11/12  at  09:49 AM

11. I am one of those appraisers that is “Unacceptable” to be on the top tier of the “Proven Appraiser” list with WAMU. I have been an appraiser since 1975, and over the years have had the reputation for being accurate and fair in my judgments.  In most recent years I have been named as “Conservative”. Terminology to describe an appraiser that will not “Push” or “Bring in Values”. This has cut my income to about 20% of what I made in 1993. Besides verbal closed door threats of “You either make the values that we need, or you get no more work” to the tactics of the Appraisal Management Co. policy to offer the “Low value Appraiser” several appraisal jobs at 50% of the traditional fee, then when refused, he gets removed from the list for being an “Uncooperative Appraiser” thereby covering up the reason that they fire the appraiser that won’t compromise his ethics. This goes deeper than just WAMU. It happens with virtually all of the Mortgage Bankers, large and small. There is so much more to add, but not room in this blog.

    Posted by  on  11/14  at  08:07 AM

12. Me,Marxist? Anti-capitalist? You guys missed my point completely. I have very close friends and buddies in the mortgage business,I am an HONEST apprasier. Nevertheless,human nature being what it is,i am inclined to give them the benefit of the doubt when doing value checks. Very frankly,if I was doing this somewhat anonymously,my bias would be to appraise CONSERVATIVELY,probably killing some deals which should not have been deals in the first place. Hey you free market worshipers,which profession is the greatest paragon of capitalism,I will spell it out for you P-R-0-S-T-I-T-U-T-I-0-N.

    Posted by  on  11/25  at  10:54 PM

13. I’m glad that companies see that they can’t get away with fraud. You should check out Hawthorne Abstract Corp too. MortgageIT is aware of there past activities but won’t help the little guys who Hawthorne already hurt.Hawthorne uses S.S.numbers with out a paper trail.We have a big problem with Hawthorne,but no one will check them out. WHY?? How many people do they have to hurt before someone does something.

    Posted by  on  05/28  at  07:16 AM

14. Hawthorne Abstract corp.,now Hawthorne Capital Corp. is great at getting you an illegal mortgage. They did a job on us. I have been trying for almost four years,but as a result of their tricks,we finally had to sell the house. They used my husband’s S.S. No. to get a loan for my sister in-law & brother in-law. without my husband’s knowledge. You can check this out for yourself.Recorded in Brooklyn,NY( block and lot no’s are 5505-08 ) The recorded mortgage is all lies. It should not have gone through. I just wanted to help stop this fraud, how many others have they hurt since 2006 or even before that. Even the notary and appraiser had to go for hearings. The documents stated, we live in Brooklyn we don’t, we live in Delaware for more than 20yrs. I hope someone can stop this kind of fraud. Hawthorne even forged my husband’s name and then crossed it out after my in-laws got the money, they recorded it after 22 days, because my husband refused to sign blank spaces on already notiarized documents. Help stop this!! Now there name is Hawthorne Capital Corp.same address 225 Broadway,ste.910 NY,NY 1007,their address in Brooklyn was 55 Washington,St. ste.851 ,brooklyn,NY. 11201 Hope others have better luck. I’m just glad we sold the house,so my in laws can’t have it. Their children used it for a hang out. For themselves and friends.Since my sister in law lives next door,she really doesn’t care at all what was going on there. The house was a mess, they had to clean it up for the new owners.

    Posted by  on  03/19  at  12:01 PM