DOJ turns up the heat to remove embattled Fed official

It’s getting really ugly in D.C.

But not on the streets.

Nope, we’re talking about multiple federal offices as President Donald Trump’s campaign to oversee the independent Federal Reserve expands to the Department of Justice.

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DOJ attorney Ed Martin said in an Aug. 21 letter to Federal Reserve Chair Jerome Powell that it will investigate Fed Governor Lisa Cook based on a criminal referral sent by William Pulte, the Trump administration housing official, Trump loyalist and harsh critic of Powell.

The letter, first reported by CNBC, urges Powell chair to fire Cook from the board in light of the allegations of mortgage fraud that have been lodged against her.

How mortgage and legal experts define mortgage fraud

Claiming more than one property as a “primary residence” is almost always considered mortgage fraud under U.S. law.

It can carry federal felony charges, prison time, and million-dollar fines if prosecuted.

Related: Housing chief Pulte drops bombshell on Fed governor

• “Occupancy misrepresentation,” or when a borrower lies about whether a property will be their primary residence, a second home, or an investment property, is a crime.
• The fraud is usually financially motivated: borrowers want to secure lower interest rates and better terms that lenders reserve for primary residences because of lower risks.
• While sometimes borrowers argue confusion (e.g., they split time between two homes), lenders and regulators look at intent and actual usage. The IRS, courts, and regulators usually consider where you:
• Spend the majority of your time.
• Have your driver’s license, voter registration, or tax filings.
• List for mail and bills.

It’s fraud when two homes are claimed as primary residences

• Primary residence is a legally defined term in mortgage lending. It means the home where the borrower actually lives most of the year (typically at least 6 months + 1 day).
• If a borrower claims two different properties as their primary residence, experts say it is an intentional misrepresentation because by definition you can only have one true primary residence.
• This false statement is considered occupancy fraud, a common type of mortgage fraud.

Mortgage fraud is both a federal and a state crime in the U.S.

• At the federal level, it is prosecuted under statutes such as:
• 18 U.S.C. § 1014: False statements to a financial institution.
• 18 U.S.C. § 1344: Bank fraud.
• 18 U.S.C. § 1349: Conspiracy to commit bank fraud.
• The FBI and the DOJ classify misrepresentation on a loan application such as occupancy as a form of mortgage fraud.

Mortgage fraud defendants face substantial penalties

The penalties can be severe, especially if the false statement is material and tied to a federally insured lender (which covers most U.S. banks and mortgage companies):

• Federal penalties:
• Up to 30 years in federal prison.
• Fines up to $1,000,000 per count.
• Restitution (repaying ill-gotten gains).
• State penalties: Vary by jurisdiction, but can include prison terms (often 1–20 years), fines, and loss of professional licenses (for brokers or loan officers).
• Civil consequences:
• Loan acceleration (bank calls loan due immediately).
• Foreclosure.
• Difficulty obtaining future credit.
• Possible IRS issues if rental income or second-home deductions were disguised.

DOJ letter demands Powell act immediately to fire Cook

The problem: only the president can fire a Federal Reserve governor and that must be “for cause.”

No charges have been filed against Cook, a Biden appointee who joined the Fed in 2022 and whose term ends in 2038.

Related: Growing divide splits Federal Reserve as Jackson Hole approaches

The mortgages in question were obtained prior to Cook, the first Black woman to join the Fed board, took the job.

DOJ officials did not respond to questions about the letter.

“At this time, I encourage you to remove Ms. Cook from your Board,” Martin wrote. “Do it today before it is too late! After all, no American thinks it is appropriate that she serve during this time with a cloud hanging over her.”

Pulte, in a 44-page formal criminal referral letter dated Aug. 15, asked Attorney General Pam Bondi to investigate whether Cook committed mortgage, bank, and wire fraud plus other charges while obtaining mortgages for properties in Michigan and Georgia in 2021.

In a statement Aug. 20, Cook said: “I do intend to take any questions about my financial history seriously as a member of the Federal Reserve and so I am gathering the accurate information to answer any legitimate questions and provide the facts.”

Fed officials declined further comment on Aug. 21.

Trump administration revs up its actions against political foes

Pulti’s office did not respond to email questions as to whether other members of the Federal Reserve were under investigation.

The Trump administration has also pursued mortgage fraud allegations against high-profile Democrats, including California Senator Adam Schiff and New York Attorney General Letitia James.

More Federal Reserve:

• What the star-studded Jackson Hole Fed meeting means to you
• Producer price inflation shocks Fed interest rate cut bets
• White House taps more potential candidates to head the Fed
• White House expands search to replace Fed Chair Powell
• Trump makes surprise decision on Federal Reserve

The Cook incident expands that effort to the Fed, as Trump allies including Pulte press the independent central bank with a barrage of criticisms and threats to force Powell to lower rates and to resign before his term expires in May.

Another Fed governor resignation would create a third opening for Trump to fill on the Fed board in the next year, potentially tipping the balance of Republican appointees to four of its seven members.

What’s ahead for the Fed and Jerome Powell 

Treasury Secretary Scott Bessent is in the process of interviewing about a dozen candidates to fill Powell’s seat as chair.

Trump has explicitly said he will only nominate someone who agrees with his demands to lower interest rates.

This stance has a chilling effect on markets and Fed watchers who fear that move would greatly compromise the independence of the central bank.

Powell is slated to give the keynote address Aug. 22 at the Jackson Hole Economics Symposium where he is expected to indicate if there will be a change to Fed’s “wait-and-see” approach to holding interest rates steady.

Related: Fed official sends strong message on digital payments

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