Probably the biggest news item this Friday is a press release put out by New York AG Andrew Cuomo’s office, which said it has sued First American and subsidiary eAppraiseIT for conspiring with Washington Mutual to inflate appraisals. The press release reads like an episode of your favorite TV drama – some excerpts:

In a scheme detailed in numerous e-mails, eAppraiseIT (“EAâ€?), a subsidiary of First American Corporation (NYSE: FAF), caved to pressure from Washington Mutual (“WaMuâ€?) (NYSE: WM) to use a list of preferred “Proven Appraisersâ€? who provided inflated appraisals on homes. The e-mails also show that executives at EA knew their behavior was illegal, but intentionally broke the law to secure future business with WaMu … On February 22, 2007, in response to a description of the WaMu “Proven Appraiserâ€? program as one in which “we will now assign all Wamu’s work to Wamu’s ‘Proven Appraisers’… [and] Performance ratings to retain position as a Wamu Proven Appraiser will be based on how many come in on value,â€? eAppraiseIT’s president told senior executives at First American: “we have agreed to roll over and just do it…â€? … On April 17, 2007, eAppraiseIT’s president wrote an e-mail to First American explaining why its conduct was illegal: “We view this as a violation of the OCC, OTS, FDIC and USPAP influencing regulation.â€?

Cuomo’s office also said that it has e-mail evidence allegedly showing that WaMu pressured EA to inflate appraisals as a condition for doing future business together. For it’s part, and not at all surprisingly, First American is not taking the news lying down — it quickly issued a statement late yesterday to the OC Register’s Mathew Padilla that he posted on his blog yesterday:

“The complaint filed today by the New York Attorney General against First American and our eAppraiseIT subsidiary has no foundation in fact or law. We are dismayed by any impact these specious allegations may have on our company, on our many employees and on our valued customer, Washington Mutual. The Attorney General’s allegations, largely based on a handful of e-mails that have been taken out of context, or mischaracterized, and an incomplete review of the facts, belie our record of compliance with applicable law. The program called into question today by the Attorney General has been vetted and approved by the federal regulator responsible for oversight of such programs. We welcome the opportunity to now present all the facts before an impartial third party. In that presentation, we will demonstrate the appropriateness of our appraisal practices in the state of New York and we will vigorously defend the reputation of Washington Mutual and the reputation we have labored more than 100 years to build.”

Without commenting on any of the claims, I will say that this is likely to be a barnburner insofar as these sorts of cases go. Update: That barnburner I mentioned? It’s burning. American Banker has spot-on coverage that highlights Cuomo’s thinking that First American may not be the last firm the New York AG targets over alleged appraisal inflation. Is it possible that the title industry could find itself yearning for Spitzer?