The Securities and Exchange Commission and the Office of Thrift Supervision are looking into allegations that Washington Mutual Inc. originated, securitized and sold mortgages that were made using inflated appraisals.
The allegations were made in a lawsuit filed against WaMu’s appraiser by New York Attorney General Andrew Cuomo.
WaMu said in a statement that it is cooperating fully with SEC and OTS inquiries, although the company has spent “a month and a half investigating these allegations (and) we can say with confidence that there has been no systematic effort by WaMu to inflate home appraisals.”
The New York attorney general’s office filed suit Nov. 1 against First American Corp. and its subsidiary eAppraiseIT, accusing the companies of providing inflated property appraisals for WaMu. The lawsuit alleges the companies were pressured by WaMu to use a list of preferred appraisers who provided inflated property valuations
First American Corp. denies wrongdoing and has asked that the suit be thrown out. WaMu was not named in the lawsuit, and has also denied wrongdoing.
Cuomo has also subpoenaed Wall Street firms that securitize mortgages, and government-chartered mortgage repurchasers Fannie Mae and Freddie Mac, as part of the 10-month probe, which is focused on appraisals and the packaging of loans into mortgage-backed securities (MBS) for sale to investors.
WaMu announced Dec. 10 it planned to lay off 3,150 workers, slash dividends, and issue $2.5 billion in preferred stock to cut costs and raise cash, after fourth quarter charge-offs for loan losses hit $1.6 billion — twice the amount previously expected.
The Seattle-based bank hopes to reduce expenses by $500 million in 2008 and raise $3.7 billion in equity, having boosted provisions for first quarter 2008 loan losses to between $1.8 billion and $2 billion.
