Cuomo files subprime-related lawsuit

New York Attorney General Andrew Cuomo.

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TESS VIGELAND: So far the main villains in the subprime story have been mortgage brokers, banks and investors who blithely bought into risky mortgage securities. Today, a new character, courtesy of New York Attorney General Andrew Cuomo. He sued a real estate appraisal company called EAppraiseIT. The company allegedly colluded with Washington Mutual to inflate home values. Marketplace's Jill Barshay reports.


JILL BARSHAY: EAppraiseIT manages 20,000 home appraisers around the country. They're the people who put a value on your house when you take out a mortgage. Cuomo's suit says Washington Mutual, the biggest savings and loan in the country, pressured EAppraiseIT to find and use appraisers who would inflate home values.

Terry Dunkin is president of the Appraisal Institute. He represents a quarter of the 90,000 home appraisers in the U.S. He says banks often try to get appraisers to say a house is worth more than it is.

TERRY DUNKIN: It is prevalent. Some would suggest even rampant. In those instances where the appraiser caves to that type of pressure, it does tend to create a spiraling up effect.

Bad appraisals weren't just fuel for the housing bubble. David Berenbaum is executive vice president of the National Community Reinvestment Coalition. He's been working with states around the country to crack down on appraisal fraud. He says a bad appraisal can make it impossible for a subprime borrower to refinance.

DAVID BERENBAUM: This is critical. There's no question about it. Again, we see it again and again in the loans that we're intervening on now to prevent foreclosure and to do loan mods or refinances. We go back and do forensic appraisals and we see folks who have had problematic appraisal all too frequently.

Washington Mutual said today it's suspending its relationship with EAppraiselT. Dunkin and Berenbaum both say it's going to take more lawsuits and federal legislation for the industry to clean up its act.

In New York, I'm Jill Barshay for Marketplace.

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