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Pressure to inflate numbers leads to lawsuit

The Baltimore Sun

Veteran real estate appraisers have complained bitterly for years about loan officers' demands that they fudge and inflate numbers to allow mortgage deals to close.

But now a California appraiser has filed suit against 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 suit 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 -- thereby contributing to continuing 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 as "declining" in an appraisal. 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 only objective and accurate reports free of outside influence. According to the suit, Wertz was then cut off from any additional Washington Mutual business through the appraisal management companies.

Wertz's suit, filed in Superior Court in Sacramento, Calif., 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, Geri Ann Baptista, said the bank would have no comment on Wertz's allegations. But appraisers across the country have been filling online industry chat rooms and blogs with comments on the suit, most of them applauding Wertz for blowing the whistle.

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

Pamela Crowley, an appraiser in Cape Canaveral, Fla., said the California suit should be a siren in the night 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."

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.

If the long-term trend moves the marketplace toward ethical, accurate property valuations, that's got to be good news for consumers.

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