President Donald Trump is attempting to remove Federal Reserve Governor Lisa Cook, accusing her of mortgage fraud. No charges have been filed, but Cook recently filed a lawsuit challenging Trump’s effort to fire her. Last week, the Department of Justice reportedly launched an investigation into the matter.

The allegations appear to focus on occupancy fraud, connected to mortgages on two properties — one in Ann Arbor, Michigan, and one in Atlanta. Occupancy fraud occurs when a person falsely declares a property as their primary residence to secure a mortgage backed by a federally insured bank, credit union, or federal agency such as the FHA.

“This type of fraud was most common during the mid-2000s housing bubble,” according to a 2023 report from the Federal Reserve Bank of Philadelphia, which noted that occupancy fraud “persists through more recent times.”

Falsely declaring a primary residence is significant because mortgages on primary homes typically have lower interest rates, smaller down payments, and less stringent credit requirements than mortgages on second homes or investment properties. Criminal defense attorney Jeffrey Buehner, who has represented clients accused of white-collar crime, explained:

“With a second property you may only get a 15-year loan at a higher interest rate and be required to have a higher credit score.”

Occupancy fraud is classified as a federal felony, carrying potential penalties of up to 30 years in prison and $1 million in fines. Christine Adams, a former federal prosecutor, explained that actual punishments often depend on the financial loss caused by the alleged fraud. She said prosecutors generally focus on cases where the losses exceed federal guidelines:

“The penalties are driven by the loss amount. Did a person’s false statement influence the lender’s or federal agency’s decision to make a loan they otherwise wouldn’t have made?”

To prove occupancy fraud, prosecutors must show that a defendant knowingly and intentionally misrepresented a property as a primary residence. Adams noted that evidence could include emails, text messages, and patterns of behavior. She said:

“It could be ‘You bought this home in Park City, but you live and work in Pasadena and your kids go to school there.’”

The case comes amid Trump’s broader efforts to influence the Federal Reserve. While no charges have been filed, the lawsuit filed by Cook and the DOJ’s investigation highlight the legal complexities surrounding allegations of mortgage fraud and the high stakes involved in disputes over federal authority.