SEC Probes WaMu on Appraisal Practices

The Securities and Exchange Commission has opened an investigation into appraisal practices at Washington Mutual, according to a report Friday in the Wall Street Journal. Citing unnamed sources, the Journal says the probe is in its infancy but will include “whether WaMu accurately disclosed to investors of mortgage-backed securities how its loans were appraised as well as whether the company properly accounted for its loans in financial disclosures to investors of the company.” WaMu issed a statement saying it is cooperating with the investigation and that it has “confidence that there has been no systematic effort by WaMu to inflate home appraisals,” according to the story. Appraisal practices at Seattle-based Washington Mutual entered the spotlight on November 2, when New York Attorney General Andrew Cuomo announced a lawsuit against First American over appraisal fraud that included WaMu. Cuomo’s case did not name the bank as a defendant, due to Federal banking rules. In the wake of the suit, analysts have estimated that Washington Mutual’s repurchase risk could require an additional $412 million to $2.1 billion in loss reserves, although WaMu has said its appraisal contracts stipulate third-party liability should appraisal fraud be found. Disclosure: the author owns various put option contracts on Washington Mutual.