WaMu confirms inquiry by securities regulators

Washington Mutual said late Thursday it is cooperating with a federal inquiry stemming from allegations that it made mortgage loans based on improperly inflated home appraisals.

The Wall Street Journal, citing unnamed sources, said the Securities and Exchange Commission inquiry involves several possible issues, including whether Seattle-based WaMu accurately disclosed to buyers of its mortgage-backed securities how its loans were appraised, and whether it properly accounted for the loans in its financial reports.

The probe, which has not yet attained the status of a formal investigation, follows accusations last month by New York's attorney general that WaMu pressured appraisers to boost home values so that the company could write bigger loans.

In a statement emailed to The Seattle Times by WaMu spokeswoman Olivia Riley, the company said: "We are voluntarily and fully cooperating with the SEC's inquiry as well as the OTS (Office of Thrift Supervision, WaMu's primary regulator), and look forward to bringing the facts to both the regulators and public."

"After spending a month and a half investigating these allegations, we can say with confidence that there has been no systematic effort by WaMu to inflate home appraisals," the statement added. "We take these allegations very seriously."

News of the probe adds to the sea of troubles WaMu, one of the nation's biggest home lenders, has been trying to navigate since the mortgage industry began cratering this summer.

The company already has set aside $1.57 billion this year to cover bad loans, and expects to set aside as much as $1.6 billion more this quarter and up to $8 billion next year.

It has slashed its dividend, announced plans to cut nearly 3,300 jobs, and raised $2.9 billion in new capital to shore up its balance sheet. Since Oct. 12, just before the company reported its third-quarter results, WaMu shares have lost 58 percent of their value.

Drew DeSilver: 206-464-3145 or ddesilver@seattletimes.com