SEC Probes WaMu

Federal regulators are looking into Washington Mutual's(WM Quote) involvement in a scandal involving inflated home appraisals on mortgages originated and then sold to investors in the form of securities.

The Seattle-based lender acknowledged the Securities and Exchange Commission's informal inquiry in a statement. The nascent probe is looking at several possible issues, including whether the bank properly disclosed to investors of mortgage-backed securities how loans were appraised, in addition to whether WaMu properly accounted for the loans when disclosing financial results to shareholders, according to the Wall Street Journal, citing people familiar with the matter.

The alleged appraisal scandal began nearly two months ago, when New York Attorney General Andrew Cuomo sued title insurer First American(FAF Quote), alleging that its eAppraiseIT subsidiary had conspired to inflate house-price appraisals in an effort to boost fees. It claimed that one of eAppraiseIT's largest clients was WaMu.

WaMu said in its emailed statement it is fully cooperating with the SEC's inquiry, as well as the Office of Thrift Supervision, the bank's federal regulator.

"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," a spokeswoman wrote. "We take these allegations very seriously."