U.S. probes allegations that WaMu sought inflated appraisals

Federal regulators are looking into allegations that mortgage lender Washington Mutual Inc. pressured First American Corp. of Santa Ana to inflate appraisals of homes nationwide.

Washington Mutual, the nation’s largest savings and loan, said Thursday that it was “voluntarily and fully cooperating” with probes by the Securities and Exchange Commission and the Office of Thrift Supervision, a U.S. Treasury Department agency that regulates federally chartered S&Ls.;

Seattle-based Washington Mutual said it was confident that “there has been no systematic effort by WaMu to inflate home appraisals.”

The allegations were first raised by New York Atty. Gen. Andrew Cuomo in a fraud suit he filed Nov. 1 against First American, a giant real estate services company that operates a large home-appraisal unit. When the suit was filed, First American said the complaint had “no foundation in fact or law” and was based on “on a handful of e-mails that have been taken out of context, or mischaracterized.”

In going after First American, Cuomo said he couldn’t sue Washington Mutual because federal courts had ruled that state officials can’t regulate federally chartered banks and thrifts.

Cuomo called the case “symbolic of an industrywide problem and a long-term problem.”

Inflated appraisals make it easier to complete home sales but help cause greater-than-expected losses for lenders and borrowers when home prices fall, as they have sharply this year, housing experts say.

-- E. Scott Reckard