‘Mortgage fraud’ or ‘abuse’ of confidential data?

The announcement from President Donald Trump on Aug. 25 that he was firing Federal Reserve governor Lisa Cook amounts to an extraordinary weaponization of the housing finance system that depends on private, deeply personal data from millions of Americans, experts said the following day.

In a post on Truth Social, Trump claimed “sufficient cause” to remove Cook immediately, pointing to accusations that she had made false statements on mortgage applications, and bringing the president one step closer to shaping the balance of the Fed’s seven-member board in his favor, as he’s attempted to do for months.

That step “is nothing more than one person’s inference from documents,” said Karen Petrou, co-founder of Federal Financial Analytics, Inc., and long-time Fed-watcher. “It’s not what the law calls sufficient cause suitable for firing a Federal Reserve governor. It’s just an assault on the independence of the Fed.”

The president’s move was based on allegations by Bill Pulte, director of the Federal Housing Finance Agency, the entity that regulates mortgage guarantors Fannie Mae and Freddie Mac. Pulte claims to have found evidence that Cook called more than one property her “principal” residence in separate mortgage applications for each.

So-called occupancy fraud is a very particular type of criminal activity, said Christopher K. Odinet, a professor at the Texas A&M University School of Law. Lenders provide more favorable terms for mortgages that finance a borrower’s home purchase, as opposed to a property used for vacations or investments, Odinet explained. A larger down payment may be required, or a higher interest rate may be charged for properties that are not a principal residence.

“There are reasons why one might see facts that may appear to be occupancy fraud when in fact they’re not,” Odinet told USA TODAY. An applicant may have a life change like a family event or a move in between the two applications, he noted.

Listing two residences as “principal” “may not have been intentional,” Odinet said. “It may not have been stated with an intent to gain an advantage.”

In a blog post published shortly after Trump’s announcement, Georgetown Law Professor Adam Levitin noted that the statutes Pulte references aren’t applicable to Cook’s situation and can’t lead to a criminal investigation.

For example, Levitin wrote, “A misrepresentation about intended occupancy on the Uniform Residential Mortgage Application could trigger 18 U.S.C. § 1014, but the representation there, that property will be the borrower’s ‘primary residence,’ is very narrow given that no duration is specified. That vagueness cuts against a criminal prosecution.”

While many experts, including Levitin, have spoken out about what seems like a clear attempt to remove any Fed official who doesn’t agree with the president’s stance on interest rates, Petrou is also struck by what she calls “abuse” of a system that depends on extensive amounts of confidential personal information.

“Even worse than the firing attempt is that the political appointed head of an agency is able to gain access to a regulated agency’s records on personal data and make it public,” she said.

As Odinet sees it, there are frequently times when “life changes” or timing issues cause what may seem like application fraud. “For-cause removal generally is serious misconduct. If this results from life changes, these sort of gray areas, then it would not seem to be serious misconduct,” he said.

Al Bingham, a loan officer with Momentum Loans in Sandy, Utah points out that occupancy fraud was a “big issue” during the subprime crisis and calls the allegations against Cook “concerning.” For anyone relying on the characterization of a property as a “principal” residence, “you’d be taking advantage,” Bingham said, “and the taxpayer is the backstop.”

But even Bingham says the way the investigation has been handled is troubling. “This should not be in the public domain,” he said. “If FHFA wants to review it, they should go through the Justice Department.”

Cook said on Aug. 26 that the president lacked authority to oust her from the board of the central bank. She plans to challenge the move in court, according to a statement from her attorney.

“It’s really an extraordinary violation and breach of our privacy to get our very personal financial information to try to punish us for what we say or think,” Petrou said.

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