Shares of Washington Mutual Inc., the nation's largest savings and loan, fell yesterday to an 11-year low after the company announced that federal regulators are investigating how it set values for mortgages sold to investors.

Its stock dropped 4 percent yesterday, or 57 cents, to close at $14.10 on the New York Stock Exchange. The shares are down 69 percent this year.

The SEC is examining loans that New York prosecutors claim may have been based on inflated home appraisals. The agency may also review how the bank accounted for the debts in its financial statements.

"We are voluntarily and fully cooperating with the SEC's inquiry," Washington Mutual said in an e-mailed statement yesterday. The Seattle company said it looks "forward to bringing the facts to both the regulators and public."

The Office of Thrift Supervision is also participating in the review, Washington Mutual said.

SEC spokesman John Nester and OTS spokesman Bill Ruberry declined to comment.

New York State Attorney General Andrew Cuomo sued First American Corp., the largest U.S. title insurer, last month, claiming its eAppraiseit L.L.C. unit inflated home values under pressure from Washington Mutual. False appraisals can mislead investors about the risk of defaults in mortgage-backed securities by overstating the ability of troubled borrowers to sell their property or refinance to settle the debt.

First American produced 262,000 valuations over 18 months for Washington Mutual, earning $50 million, Cuomo said in his complaint. E-mails between executives at the appraisal company and Washington Mutual show eAppraiseIT "willingly violated" state and federal regulations that call for independent appraisals, Cuomo said at the time.

"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," Washington Mutual said in its statement yesterday.

Cuomo hasn't sued Washington Mutual. A federal appeals court ruled this month that New York State doesn't have the legal authority to investigate residential real estate lending practices by national banks.

First American, based in Santa Ana, Calif., has disputed Cuomo's allegations and asked a court to dismiss the suit, claiming he lacks authority to bring the case.

Washington Mutual wrote down the value of its home-lending unit by $1.6 billion Dec. 11 and cut 2,600 jobs. The lender also reduced its dividend by 73 percent to 15 cents a share.