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Bad Appraisals Enable $100 Million in PA Mortgage Fraud

Conviction in First Capital Home Equity case

Jan. 30, 2013

By Mortgage Daily staff

A Pennsylvania mortgage broker has been convicted of originating more than $100 million in fraudulent mortgages by using inflated appraisals prepared by unlicensed appraisers.

First Capital Home Equity was operated as a mortgage brokerage in Pittsburgh, Pa., by Lewis Whoolery.

In 2003, unlicensed appraiser Kenneth Cowden was recruited by Whoolery to prepare fraudulent appraisals, according to the Department of Justice. The appraisals falsely listed Cowden as a licensed appraiser, included fraudulent pictures, and overvalued properties.

"Cowden altered the pictures of the properties being appraised to make it look like the properties were in better condition than they really were, and in some cases, he substituted pictures of completely different properties than the properties subject to the appraisals," according to the government.

An estimated $67 million in bogus appraisals were prepared for First Capital by Cowden between 2003 and 2005. The government alleges that in all, Cowden submitted a total of more than $320 million in fraudulent appraisals through more than a dozen different mortgage brokers.

Whoolery also recruited his sister, Kimberly Baldwin, and Jeannette Gray, a licensed appraiser from the Philadelphia area, to help in the conspiracy. Baldwin is accused of preparing appraisals under Gray's name, while Gray is accused of collecting $4,000 a month to allow her name to be used in the appraisal reports.

As was the case with Cowden's appraisals, the reports prepared under Gray's name inflated values, substituted pictures and showed that a licensed appraiser completed the report.

When Gray elected to opt out of the scheme in 2004, Jason Sheraw stepped in to allow use of his name and Pennsylvania appraiser license in return for $4,000 a month.

In all, Baldwin prepared hundreds of fraudulent appraisals between 2003 and 2007 in Gray's or Sheraw's names, "resulting in the funding of tens of millions of dollars of fraudulent loans."

In addition to the bad appraisals, Whoolery and his loan originators allegedly prepared fake documents that overstated income and assets.

In all, the government claims that Whoolery originated more than $100 million in fraudulent mortgages. It was "the largest mortgage fraud case ever to go to trial in the Western District of Pennsylvania," according to the Justice Department.

On Tuesday, the U.S. Attorney's Office for the Western District of Pennsylvania said that a jury of five men and seven women found Whoolery guilty of wire fraud conspiracy. He faces up to 20 years in prison and a $250,000 fine.

Former loan officers at First Capital that have already been convicted of mortgage fraud related offenses include Lawrence Kraynak, Daniel O’Connor, Mark Hipsley, Daniel Gillen, Shawn Cupp and Elizabeth Drake. Former First Capital loan officer John Polosky pled guilty in March 2010 to his role in the fraudulent mortgage production.

First Capital apparently stopped doing business in 2008, the last date when court documents indicate that the conspiracy operated.

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