* eAppraiseIT accused of inflating home appraisals
* Agrees to pay $7.8 million to end lawsuit
* eAppraiseIT now part of CoreLogic Inc
* NY AG Schneiderman took case to trial
* Schneiderman to bring new mortgage-related action soon
By Karen Freifeld
NEW YORK, Sept 27 (Reuters) - A company accused of inflating home appraisals under pressure from Washington Mutual Inc before the housing crisis agreed to pay $7.8 million on Thursday to settle with the New York attorney general.
EAppraiseIT, a unit of CoreLogic Inc, resolved the charges with New York Attorney General Eric Schneiderman while on trial.
The case, filed in New York state court in 2007, is one of the few related to the housing meltdown that the government has brought to trial. The trial was in recess when the settlement was reached.
Schneiderman is co-chair of the federal mortgage fraud task force formed in January to probe actions that led to the financial crisis. He has said he plans to take legal action against other targets soon.
Homes that were appraised above their value, allowing mortgage companies to issue bigger mortgages, are among the causes cited by experts for the housing bubble and subsequent financial crisis.
EAppraiseIT, a major appraisal management company during the housing boom, was accused of colluding with Washington Mutual, which had been of the largest U.S. mortgage lenders until the housing market collapsed.
"Coercion of appraisers to inflate home values and the erosion of appraisal independence directly contributed to the housing crisis," Schneiderman said in a statement. "By giving in to lender pressure, these corporations violated a principle that is vital to restoring and maintaining a healthy housing market."
WaMu failed in September 2008, and JPMorgan Chase and Co acquired its lending business. The bank is not a defendant in the case.
EAppraiseIT let bank loan officers determine the pool of appraisers to be used, based on whether the appraisers were more likely to come through with the values needed to close on the loan, according to court papers.
The company handled more than 260,000 appraisals around the country for Washington Mutual. In 2006 and 2007, it conducted about 10,000 appraisals on New York properties for the lender.
The case, which involved only New York appraisals, could have ended with penalties of up to $9.5 million if the judge reached a verdict, one source said.
Alyson Austin, a CoreLogic spokeswoman, said eAppraiseIT is part of CoreLogic Valuation Services, a business the company is shutting this month. She declined immediate comment on the settlement.
New York state Supreme Court Justice Charles Ramos had been hearing the case sporadically without a jury.
One appraiser testified he stopped getting work from eAppraiseIT in April 2007 because he failed to pump up valuations. He said he was told his name was not on a list of appraisers provided by Washington Mutual's sales office.
Evidence included a 2007 email from a former Washington Mutual employee that said eAppraiseIT's appraiser list had been scrubbed.
"But instead of keeping good appraisers, they went for the BADddd ones," the email said.
An expert witness testified at least 60 percent of the appraised properties she analyzed had inflated values.
Anthony Merlo, former chief executive officer of eAppraiseIT, had been scheduled to testify in the case.
EAppraiseIT was the appraisal management unit of real estate services company First American Corp, which is also a defendant in the lawsuit.
First American later split into two companies, First American Financial Corp and CoreLogic Inc.
The case is People of the State of New York v. First American Corp., New York state Supreme Court, New York County, No. 07-406796.