Why claims of mortgage fraud are central to Trump鈥檚 push to influence Fed
Federal Reserve Chair Jerome Powell talks with Lisa Cook, a member of the Fed's Board of Governors, during a meeting in Washington, June 25, 2025. President Donald Trump is attempting to fire her from the board.
Mark Schiefelbein/AP
President Donald Trump鈥檚 effort to remove a governor from the Federal Reserve Board is raising high-stakes economic and political questions about the central bank鈥檚 independence.
On Monday evening, Mr. Trump announced the removal of Lisa Cook, citing allegations that she has committed mortgage fraud.
The move already faces a legal challenge, but could have widespread ripple effects from the U.S. economy to legal precedents governing presidential power. It鈥檚 part of a series of similar allegations the Trump administration has made against some of the president鈥檚 political enemies.
Why We Wrote This
America鈥檚 central bank is designed by Congress to be insulated from political pressure. That standard is under strain as President Donald Trump, seeking influence over monetary policy, tries to oust Lisa Cook from the Federal Reserve Board.
Federal laws serve to insulate the Fed 鈥� and thus U.S. monetary policy 鈥� from political influence. Such independence, common to the most trusted central banks around the world, is widely seen by economists as a crucial defense against political pressures that can lead to harmful levels of inflation.
Many presidents have been frustrated by their lack of power over the central bank, but Mr. Trump has been making a rare overt effort to erode that independence, including a monthslong pressure campaign to make the Fed lower interest rates.
Attorney Abbe Lowell has on behalf of Dr. Cook, calling her firing legally baseless. Dr. Cook has not been charged with a crime, but some legal experts say a president removing a board member before charges are filed is probably lawful.
Overall, Mr. Trump鈥檚 attempt to dismiss Dr. Cook represents an escalation on two fronts: Mr. Trump鈥檚 efforts to exert greater control over the Fed, and his pivot toward targeting political opponents with criminal investigations 鈥� seemingly in conflict with a campaign promise to end such 鈥渓awfare鈥� that he says motivated prosecutions against him in recent years.
How have markets responded?
They tanked in April when President Trump threatened to fire Fed Chair Jerome Powell. But they hardly blinked on Tuesday after his announced firing of Dr. Cook.
鈥淢arkets have been remarkably accepting, particularly the equity market, of this enormous broadside to Fed independence,鈥� says Mark Spindel, founder of Potomac River Capital, an investment firm based in Washington, D.C.
The real fireworks, he says, will come if and when the president replaces Mr. Powell with someone seen as willing to do his bidding. Such an appointment would clearly call into question the Fed鈥檚 ability to set interest rates without political interference.
Why is independence important for the Fed?
America鈥檚 central bank aims to keep the nation鈥檚 . Politics tempts presidents to focus on their own short-term advantage rather than the long-term health of the economy. They鈥檙e often pushing the Federal Reserve to lower interest rates to make it cheaper for businesses and consumers to borrow money. The economy hums because people buy goods and services and firms expand.
But that loose monetary policy allows companies to raise prices and sets the stage for inflation to rise. That鈥檚 when the Fed is supposed to step in, raise interest rates and slow the economy. Presidents don鈥檛 like that. Over the long term, nations with independent central banks tend to have more stable prices than those where politicians can meddle with rates.
Fed watchers say Mr. Trump is trying to gain control over the committee that sets interest rates, known as the . He already has two appointees on the seven-member Board of Governors and has nominated his senior economic adviser for another vacancy. Should the removal of Dr. Cook withstand legal challenges, he could have four seats on the governing board. If Mr. Powell gives up his board seat when his tenure as chair ends next May, as Fed leaders usually do, Mr. Trump could have five seats by next year. The rate-setting committee includes all the board members plus five presidents of regional Fed banks, who are not appointed by the president.
Years of ethics scandals have weakened the Fed鈥檚 credibility, says Aaron Klein, a senior fellow in economic studies at the Brookings Institution. A few examples: Two high-ranking Fed officials , under scrutiny for alleged insider trading; the Atlanta Fed chief from 2018-2023; and the Richmond Fed chief resigned in 2017 for years earlier.
This might have smoothed the way for Mr. Trump to take his unprecedented action, which could have far-reaching consequences, according to Mr. Klein. 鈥淭his is a political pretext to end the independence of a central bank. Trump is scared of how markets would react if he fired Powell, so he鈥檚 testing what happens if he fires Cook,鈥� says Mr. Klein, who is also a former deputy assistant secretary for economic policy at the Treasury Department.
What is mortgage occupancy fraud?
A long-running issue in the housing industry, mortgage occupancy fraud essentially means lying on a mortgage application form. For people with multiple homes, lenders offer better mortgage rates for a primary residence than for a second home or investment property. Owners of second homes also often must pay higher property taxes and insurance premiums than for primary residences.
Thus, claiming multiple primary residences in essence cheats lenders and taxing entities out of money. In addition to Dr. Cook, Sen. Adam Schiff of California and New York Attorney General Letitia James, both Democrats, have been accused of committing similar mortgage fraud crimes. None has been charged.
How common is it, and how is it punished?
Mortgage fraud is a nationwide problem that that the FBI before Trump鈥檚 first presidency.
However, investigations of mortgage fraud typically target large-scale homebuyers responsible for defrauding large sums, not individuals who own a few different properties. Mortgage fraud cases in general are rarely prosecuted, lawyers say. Mortgage fraud can carry a maximum punishment of 30 years in prison and up to $1 million in fines, the Wall Street Journal .
What are the allegations?
Most of the allegations have come from Bill Pulte, the head of the Federal Housing Finance Agency. The agency oversees Fannie Mae and Freddie Mac, which together support roughly 70% of the U.S. mortgage market.
The FHFA in recent weeks has submitted criminal referrals to the Justice Department accusing Dr. Cook, Senator Schiff, and Ms. James of committing mortgage fraud.
Dr. Cook in 2021 claimed a home in Michigan and a condo in Georgia as her primary residences, according to a from Mr. Pulte last week.
In a referral filed in May, the agency claims that Senator Schiff named a Maryland home as his primary residence for a decade even though the law required that his primary residence be in his home state. Mr. Schiff, who was part of congressional investigations into Russian interference in the 2016 election and into the Jan. 6, 2021, attack on the U.S. Capitol, also claimed a tax exemption on a condo in California, according to the FHFA referral.
In a referral filed in April, the agency also claims that Ms. James listed a Virginia property as her primary residence in 2023 despite holding public office in New York, and that she also misrepresented a Brooklyn property she owned in 2021.
No charges have been filed in any of the cases. Senator Schiff and Ms. James have described the allegations as false and politically motivated.
Can the president fire a Fed governor?
The Federal Reserve鈥檚 independence is protected in part by a law holding that the president can only remove members of its governing board 鈥渇or cause.鈥�
Essentially, the president must have a valid reason beyond policy disagreements to fire a Fed governor. The most common justifications for 鈥渇or cause鈥� removal have been 鈥渋nefficiency, neglect of duty, or malfeasance,鈥� .
Jack Goldsmith, an assistant attorney general during the George W. Bush administration, said in a social media that Dr. Cook鈥檚 firing 鈥渕ay be pretextual but is not obviously illegal.鈥�
In his Monday night letter removing her, Mr. Trump cited the FHFA criminal referral that she 鈥渕ay have made false statements on one or more mortgage agreements.鈥� Whether that will be enough to uphold her firing remains to be seen.
鈥淚t鈥檚 up to courts to define what cause [is] and what rises to cause. There hasn鈥檛 been a criminal indictment, there have been allegations,鈥� says Mr. Spindel.
The removal also comes as Mr. Trump has pressed for greater power to unilaterally fire the leaders of independent federal agencies. The Supreme Court has for the most part blessed this legal shift, but the justices have specifically kept the Federal Reserve Board out of the president鈥檚 reach 鈥� 鈥渋s a uniquely structured, quasi-private entity.鈥�
Editor's note: This article was updated Aug. 26, the date of initial publication, with two new paragraphs on the issue of central bank independence.