NEW YORK A home appraiser testified this week that he was dropped by Washington Mutual Inc during the U.S. housing boom because he failed to pump up home prices.
Giving evidence in one of the few government cases to allege wrongdoing by banks in the housing crisis, Alfred Lama said he suddenly stopped getting work from appraisal company eAppraiseIT in April 2007.
When he asked why, he was told that his name was not on a list of appraisers provided by Washington Mutual's sales office, he testified. "The sales people were going to have certain control," he said. "If you weren't making the numbers for the loans, you weren't going to get work."
Lama was testifying in state court on Tuesday and Wednesday in a case brought by the New York Attorney General alleging eAppraiseIT and its former parent company, First American Corp, caved in to pressure from Washington Mutual to inflate home appraisals.
Homes that were appraised above their value, allowing mortgage companies to issue bigger mortgages, are 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 Corp. Since then, First American split into two companies, First American Financial Corp (FAF.N) and Corelogic Inc (CLGX.N), and EAppraiseIT is now a unit of Corelogic.
Lama said he conducted appraisals for Washington Mutual, eAppraiseIt's biggest client, for more than a decade. He did over 350 appraisals for WaMu between July 2005 to July 2006, he said.
Appraisal management companies are supposed to provide a buffer between bank loan staff and individual appraisers to eliminate pressure or conflicts of interest, according to papers filed in the case by New York Attorney General Eric Schneiderman.
However, eAppraiseIt hired former WaMu employees and gave some the authority to resolve instances when appraised values were less than the purchase price, the papers said.
WaMu loan officers also pressured appraisers to adjust valuations higher and in February 2007 eAppraiseIT capitulated to WaMu's demand to use appraisers selected by the bank's loan staff, the court papers said.
"The sales people finally got their way at Wamu," witness Sabina Senorans, a WaMu sales office employee, wrote in an email on April 27, 2007, that was entered into evidence. "The appraisal list that eAppraiseIT ... is using has been totally scrubbed. But instead of keeping good appraisers, they went for the BADddd ones."
EAppraiseIT at first resisted pressure from WaMu, Schneiderman said, then agreed to "roll over," according to an email from former eAppraiseIT president Anthony Merlo to First American.
Patrick Smith, an attorney for eAppraiseIT, said all its appraisals were done according to 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.
First American sought to dismiss the case, saying only federal law applied to the appraisals. However, in late 2011, New York state's highest court ruled the state could pursue the lawsuit.
Washington Mutual failed in September 2008 amid heavy losses from billions of dollars of risky home homes. JPMorgan Chase and Co (JPM.N) acquired its lending business.
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.
(Reporting by Karen Freifeld; editing by Carol Bishopric)