The Nation's Housing

Appraiser's Lawsuit Puts Lenders on Notice

By Kenneth R. Harney
Saturday, January 26, 2008

Real estate appraisers have complained for years about demands from loan officers that they fudge and inflate numbers to allow mortgage deals to close.

Now a California appraiser has sued the country's largest thrift institution, Washington Mutual Bank, charging that she was blacklisted for refusing to provide favorable appraised values despite declining market conditions.

The lawsuit, by Jennifer Wertz, comes just two months after the state of New York sued an appraisal management company, First American eAppraiseIT, for allegedly giving in to pressure from Washington Mutual to inflate property values for loan applications -- contributing to mortgage-market losses. EAppraiseIT and LSI, a unit of Fidelity National Information Services, were also cited in Wertz's suit as contractors to Washington Mutual.

Wertz said in her complaint that she began performing appraisals for Washington Mutual in 2001 and earned "in excess of $100,000 a year" from her work for the bank. But last May, according to the suit, a Washington Mutual manager upbraided her for describing local property values in an appraisal as "declining." The manager "insisted that [Wertz] change her report to indicate 'stable' conditions so that the loan could be approved."

All the relevant data suggested otherwise, however, and Wertz refused. The manager then allegedly told Wertz that she would be banned from all further assignments from Washington Mutual if she did not cooperate. Wertz declined to do so -- citing federal, state and professional rules requiring her to provide objective and accurate reports free of outside influence. According to the lawsuit, Wertz was then cut off from Washington Mutual business through the appraisal management companies.

Wertz's lawsuit, filed in California Superior Court in Sacramento, charges breach of contract, unfair business practices, interference with her ability to earn a living, fraud, conspiracy and slander, among other alleged violations.

A spokeswoman for Washington Mutual said the bank would not comment on Wertz's allegations.

Gary T. Crabtree, principal appraiser for Affiliated Appraisers in Bakersfield, Calif., said in an interview that pressure to inflate values "has been endemic, industry-wide" and is a "significant contributing factor" in many mortgage fraud cases and foreclosures.

Every inflated appraisal during the boom years, said Crabtree, "became a comp [comparable sale] used in other appraisals" -- and the layers of overvaluations spiraled out of control in some market areas.

Susan M. Wachter, a professor at the Wharton School of the University of Pennsylvania, has estimated that appraisers helped inflate mortgage values by $135 billion in 2006, according to Valuation Review, an industry publication.

After years of excesses, prices and valuations are becoming more reasonable, Crabtree said. Part of the reason is foreclosed, bank-owned properties clogging the system. In the Bakersfield area, he said, 45 percent of current sales listings are "REO" -- real-estate owned by banks after borrower defaults -- almost all available at rock-bottom, post-boom prices. REOs are the new comps.

Perry "Pat" Turner, an appraiser in the Richmond area and a critic of lender interference, said that much of the mortgage crisis can be attributed to "ill-trained, unprofessional appraisers who were willing to knuckle under" to demands by mortgage brokers and retail loan officers to inflate values.

Pamela Crowley, an appraiser in Cape Canaveral, Fla., said the California lawsuit should be a warning for lenders. "They have threatened and taken so much business away from competent and ethical appraisers who refused to play their games that now we have nothing to lose. We are going to fight, and we're going to tell everybody what's been going on."

What does all this mean for prospective sellers and buyers? Accurate property valuations, untainted by outside pressures, should be in everybody's interest. Pending legislation in Congress would severely increase penalties for anyone who interferes with an appraisal, offers inducements for favorable valuations or punishes appraisers who refuse to deliver inflated numbers.

If the long-term trend -- whether through litigation at the state level or tougher federal laws -- moves the marketplace toward ethical, accurate property valuations, it's good news for consumers.

Kenneth R. Harney's e-mail address

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