Yet Another Example of Trump Weaponizing the Criminal Justice System

Yesterday, Federal Housing Finance Agency (FHFA) director William Pulte posted on social media a criminal referral he had sent the Department of Justice alleging that Federal Reserve Governor Lisa Cook had committed mortgage fraud by claiming two different properties were her primary residence in mortgage applications in 2021. Later that day, Trump posted a Truth Social post demanding that Cook “resign now, and Pulte then tweeted “the President has great cause to fire Lisa Cook” and that Federal Reserve Chair Jerome Powell might “be complicit with Cook’s alleged fraud.”

This is indeed a scandal. The scandal, however, is not about Lisa Cook. It is about the misuse of power by Pulte and Trump.

Lying on a mortgage application for the purpose of gaining some material advantage is indeed a federal crime, and this includes lying about the intended use of the property. This so-called “occupancy fraud”, however, is rarely prosecuted for several reasons. First, there is usually a contractual remedy—the lender can call the loan and foreclose if necessary.

Second, the federal criminal statute for this crime requires that the misrepresentation be intentional and for the purpose of gaining a material advantage. Many people are very up front with the bank or mortgage banker about the purpose of the property and may not notice the occupancy form in the flood of documents they sign at closing. Other times, the bank may agree to treat the loan as one for a primary residence so there is no material gain by any alleged misrepresentation. In addition, sometime intent changes—someone may buy a property with the intent to move only to change their mind later. It is notable that Ms. Cook got one of the mortgages in 2021, but did not rent the property until a year later.

At the very least, you can’t know whether a crime has been committed based simply on the documents. For this reason, the usual action by the FHFA would to quietly make a referral to DoJ for further examination. That, of course did not happen here. This was not done quietly—based solely on the mortgage documents Pulte publicized the referral. The clear intent of this scheme was made plain by the apparently orchestrated follow-up social media posts by Pulte and Trump: to force Cook to resign so Trump can take control of the Federal Board of Governors.

There are several very disturbing aspects of what occurred yesterday. First, making the referral public is highly improper.

Second, there is a high likelihood that FHFA only discovered the issue because they targeted Cook (and other Biden appointees and Trump political enemies). FHFA has access to most mortgage records because it controls both leading secondary mortgage purchasers. FHFA therefore has the ability—similar to IRS access to all tax records—to access the mortgage records on any American. I suspect that they decided to check the mortgage records of anyone they wanted to target. At a minimum both the press and Congress need to ask the question—how was the alleged issue discovered? Did the White or Trump ask that records be reviewed of Biden appointees in the hope of finding politically useful allegations?

This is especially disturbing because FHFA has used this same public announcement of criminal referrals to go after two other Trump political enemies: Senator Adam Schiff and New York Attorney General Letitia James. Greg Sargent of the New Republic has a stunning report on the Schiff referral. As he reports, “the FHFA’s office of inspector general (OIG) made a “Document Demand” from the Fannie Mae Crimes Unit—a demand for documents related to “all” loans “associated with” Schiff.” In other words, Schiff was targeted. And the response to this request went to Pulte himself. This itself was highly irregular:

“It is extremely unusual for the response to any IG document request to go to the head of the agency rather than back to the OIG—I have never heard of that,” Bromwich told me. “So far as I know, it is unprecedented for such raw information to be forwarded to the White House. Responses to OIG requests simply don’t go to the White House—ever.”

(I should note that as a U.S. Senator, Schiff has to have residences in both his home state and near DC so the case against him is particularly weak—he has an honest claim that both residences are his primary residence since he leaves at both and uses neither and a rental property or vacation home).

Even the Wall Street Journal Editorial Board is upset by this Pulte-Trump scheme against Cook. In an editorial this morning, they expressed deep concern:

This is nasty business. Mr. Powell doesn’t have the authority to remove Ms. Cook, and why would he know anything about her mortgages? The context for Mr. Pulte’s accusations is relevant. Mr. Trump is angry that the Fed hasn’t cut interest rates. Ms. Cook voted with Mr. Powell to stand pat at last month’s meeting of the Federal Open Market Committee.

. . .

The FHFA director says he’s doing his job by investigating potential mortgage fraud, and that nobody is above the law. That’s fair as far it goes, but blasting weighty allegations via social media or leaks is an ugly way for government regulators to behave.

This is nasty business indeed.