Washingon Mutual issued a press release tonight that would seem to shed light on the bank’s likely strategy should New York AG Andrew Cuomo’s crusade against alleged appraisal fraud at First American business unit eAppraiseIT prove to have any grounding in fact. First, the third-party vendor contract:

The contract with the vendor named by the NY AG requires that the vendor represent and warrant that appraisals are prepared in compliance with Uniform Standards of Professional Appraisal Practice and all guidelines issued by Fannie Mae and Freddie Mac. The contract also requires that the appraisals have been prepared without fraud or negligence on the part of the vendor, its employees or agents, including any appraiser.

The above language — note that eAppraiseIT has magically transformed into “the vendor named by the NY AG” — seems to suggest WaMu’s reliance on contract terms as a possible strategy if this case has legs. WaMu also noted that fewer than 5 percent of appraisals under its contract with eAppraiseIT were subprime loans, which likely explains in part why Cuomo is now digging around at Fannie and Freddie (although Cuomo made it amply clear in his office’s press statement today that he’s casting a much wider net around the appraisal issue than the current suit). What wasn’t mentioned by the bank was any geographic concentration of loans, which I’d be very interested to see beyond a mention of credit stratification. At the end of the press statement, a curious statement:

WaMu has a very rigorous process regarding all repurchase requests and believes it is adequately reserved for such liabilities.

I can only gather that this language is directed at the GSEs, should they decide to take any future repurchase actions. Fannie Mae had alluded earlier today in its own press statement that it would seek to push loans back to offending lenders if evidence of foul play was uncovered by the AG’s investigation. It seems pretty clear that nobody involved wants to be near this hot potato at the moment; all are jockeying for position. Update: Tanta addresses why all of this matters is a good post over at Calculated Risk — HW readers know I tend to let interpretation lie in between what I write, since so many readers are themselves experts in the mortgage business. But if you want a good direct explanation of why Cuomo’s suit is “scaring the panties off the mortgage business,” as she puts it, be sure to head over there are read about the rep war. FWIW, I agree with her bottom line:

You can bet that every General Counsel at every mortgage lender still operating is busy reviewing many, many contracts right now. The results will be very, very ugly.