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Published by: caitlynharvey on Nov 05, 2012
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later that WaMu was “contemplating selling a larger portion of

[its] Option ARMs” -- that is adjustable rate mortgages -- “than

[it had] in the past.” Indeed, in September 2008, WaMu

acknowledged in an internal report that “The controls that are

intended to prevent the sale of loans that have been confirmed

by Risk Management to contain misrepresentations or fraud are

not currently effective. . . . There is evidence that this

control weakness has existed for some time.”

The Amended Complaint also contains detailed allegations

that “WaMu falsely overstated appraisals in order to secure low

LTV ratios for mortgages, thereby making the loans more

attractive to prospective purchasers of certificates.” Citing

documents produced in a lawsuit by the New York Attorney General

Case 1:11-cv-06188-DLC Document 200 Filed 11/05/12 Page 42 of 60


against two appraisers that worked for WaMu, FHFA alleges that

“WaMu selected individual appraisers who were willing to produce

false, inflated appraisals and refused to hire appraisers who

maintained their independence.” Indeed, the Amended Complaint

recounts in detail how WaMu pressured appraisal services --

eAppraiseIT and LSI -- to provide inflated property estimates so

that the bank’s sales staff could “hit value.”

Taken together, this evidence supports an inference that

WaMu and its affiliates knowingly included false information

regarding LTV ratios and underwriting guidelines in the

securities they marketed to the GSEs. Because none of the

allegations in the Amended Complaint specifically address what

awareness WaMu had, if any, of owner-occupancy fraud during the

relevant period, however, FHFA’s fraud allegations are dismissed

to the extent they rely on that data.

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