Justice Department probes mortgage fraud claims against Lisa Cook of Federal Reserve, AP source says

WASHINGTON (AP) — The Justice Department has begun examining mortgage fraud allegations against Lisa Cook, the Federal Reserve governor who is challenging a Trump administration effort to remove her from her job in a move she says is designed to erode the central bank's independence.

Investigators have issued subpoenas as part of an inquiry into Cook that was spawned by a criminal referral from the country's top housing regulator, according to a person familiar with the matter who was not authorized to discuss the probe and spoke on condition of anonymity to The Associated Press.

A Justice Department spokesperson declined to comment on the probe, which was earlier reported by The Wall Street Journal.

“Predictably and recognizing the flaws in challenging their illegal firing of Governor Cook, the administration is scrambling to invent new justifications for its overreach. This Justice Department — perhaps the most politicized in American history — will do whatever President Trump demands,” Cook's lawyer, Abbe David Lowell, said in a statement.

News of the investigation comes amid a high-stakes legal fight over President Donald Trump's announcement last month that he was ousting Cook, an action she has said is being undertaken so that he can seize control over a central bank that is typically shielded from political pressure and tasked with making decisions about whether to raise or lower interest rates.

Trump moved to fire Cook on Aug. 25 after one of his appointees alleged that she committed mortgage fraud related to two properties she purchased in 2021, before she joined the Fed.

Bill Pulte, who made the criminal referral in his capacity as director of the Federal Housing Finance Agency, has asserted that Cook had claimed two primary residences, in Ann Arbor, Michigan, and Atlanta, in 2021 to get better mortgage terms. Mortgage rates are often higher on second homes or those purchased to rent.

The Justice Department inquiry is centered on those two properties, according to the person familiar with the matter. It is being coordinated with U.S. Attorney offices by Ed Martin, the director of the Justice Department’s Weaponization Working Group, who is also pursuing mortgage fraud investigations into perceived Trump adversaries, including Sen. Adam Schiff of California and New York Attorney General Letitia James, both Democrats. Both have vigorously denied any wrongdoing.

Pulte dodged questions in a CNBC interview Thursday about whether he was similarly scrutinizing Ken Paxton, the Texas attorney general who is friendly with Trump and is running for Senate in his state’s Republican primary. Paxton took out mortgages on three properties that were all identified as his primary residence. He said he wouldn't comment on any specific situation that has not been made public.

Cook's lawyers have also insisted that she did not engage in fraud.

“The questions over how Governor Cook described her properties from time to time, which we have started to address in the pending case and will continue to do so, are not fraud, but it takes nothing for this DOJ to undertake a new politicized investigation, and they appear to have just done it again,” Lowell said.

Separately, on Thursday, the Justice Department urged a federal judge in Washington to allow for Cook's immediate removal while she fights to keep her job, dismissing as “baseless” Cook’s claim that the president is attempting to fire her so that he can seize control of the Federal Reserve.

Cook’s lawyers have argued that the firing was unlawful because presidents can only fire Fed governors “for cause,” which has typically meant inefficiency, neglect of duty, or malfeasance while in office. They also said she was entitled to a hearing and a chance to respond to the charges before being fired, but was not provided either. Attorneys said in the court filing that Cook never committed mortgage fraud.

The Justice Department says the president has the discretion to fire Cook for cause and that his decisions cannot be reviewed by the courts.

The case could become a turning point for the nearly 112-year-old Federal Reserve, which was designed by Congress to be insulated from day-to-day political influence. Economists prefer independent central banks because they can do unpopular things, such as lifting interest rates to combat inflation more easily than elected officials.

Trump has repeatedly attacked Fed Chair Jerome Powell and the other members of the Fed’s interest-rate setting committee for not cutting the short-term interest rate they control more quickly.

Many economists worry that if the Fed falls under the control of the White House, it will keep its key interest rate lower than justified by economic fundamentals to satisfy Trump’s demands for cheaper borrowing.

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