Federal Reserve Governor Lisa Cook is fighting back over attempts to fire her over mortgage fraud allegations, which she denies. Those allegations are still under investigation, which leads some to believe that her firing is at least premature.
Cook is accused of "occupancy fraud," which is usually when someone claims they will live in the property when they don't intend to. In her case, she is accused of taking out two primary residence loans within weeks of each other, one for a home in Ann Arbor, Michigan, and one for a condo in Atlanta, according to CNN.
CNN also reviewed mortgage documents and verified that two loans were opened, both with a principal residence status.
Mortgage lenders offer much lower rates and fees, not to mention lower down payments, for homes the applicant will live in.
Second homes and investment properties come with higher rates and payments since these are viewed by Fannie Mae and Freddie Mac, and other agencies, as higher risk.
Is Occupancy Fraud Hard to Prove?
Prosecutions for occupancy fraud are fairly rare, perhaps because such cases are difficult to prove. Life can change suddenly, and you may have intended to occupy a property. Then a parent gets sick and you have to move and rent it out.
However, someone should have rock-solid documentation to back up their story. Still, it's hard for a prosecutor to prove to a jury what was in an applicant's mind when he or she signed the document.
What is Mortgage Fraud In General?
- "Fraud for profit:""This is fraud targeting homeowners, often through misleading terms or fraudulent loan applications," says the Office of the Comptroller of the Currency. "Mortgage fraud involves deceit or misrepresentation in the origination or funding of a mortgage loan." So, this form often involves multiple parties, including mortgage brokers, lenders, real estate agents, developers or appraisers to scam consumers or lenders.
- "Fraud for housing:" The other type is when prospective borrowers (consumers) lie, omit or misrepresent information when applying for a mortgage. Their lack of truthfulness might see them get a lower mortgage rate, a longer loan term or a smaller down payment than they deserve. It might even result in their application being approved when it should have been denied.
Leppard Law sums up the offense: "Essentially, it encompasses any deceitful action taken to influence a bank or other lending institution in connection with a mortgage loan. This can include providing false statements, misrepresenting financial status, or concealing pertinent information."
What are the Penalties?
"The legal implications of mortgage fraud are considerable," continues Leppard Law. "Under federal law, individuals found guilty of mortgage fraud can face substantial penalties, including fines, restitution, and imprisonment. The severity of these penalties often depends on the extent of the fraud and its impact on the financial institution involved."
The maximum penalties in the most egregious federal cases are 30 years in prison and $1 million fines, says FindLaw.
However, the United States Sentencing Commission fraud team data files (2016-19) report, "The average sentence imposed ranged from 22 months to 27 months during this time period." Still, 84.7% of offenders were sentenced to imprisonment, according to the USSC, which might put many off mortgage fraud.
What Are Other Types of Mortgage Fraud?
Experian provides examples of other types of mortgage fraud:
- Straw buyer fraud: This is when someone applies for a mortgage and says they will live in the home. In reality, someone else occupies the property and pays the mortgage.
- Home appraisal fraud: A home's value is fraudulently inflated to get a bigger mortgage. This tends to happen when a home's being flipped, and it's the post-renovation value that's inflated, perhaps in league with an appraiser.
- Income fraud: Buyers pretend their income is higher than it is. This may involve forging pay stubs and other documents.
- Asset rental fraud: Buyers borrow or rent assets from family, friends or elsewhere that make their finances look better than they are.
- Foreclosure scams: As a home reaches the final stages ahead of foreclosure, a fraudster swoops in and offers to shield the homeowner by taking ownership of the home and paying the mortgage. The homeowner pays rent to their white knight, but the white knight fails to make mortgage payments, and foreclosure happens anyway.
Whether you're the victim or the perpetrator, mortgage fraud is best avoided.
Will Fed Governor Cook Be Prosecuted?
How this case shakes out for Cook remains to be seen. The case is under investigation. According to Patrick Delahunty, a former federal prosecutor speaking with CNN, Cook "may have simply erred by designating both homes as her primary residence." He noted that the complex mortgage process is often used as a defense in such cases.
Cook could also have a legitimate reason she applied for another primary residence loan two weeks later.
What is nearly certain is that the investigation will be a drawn-out process. And also, a lesson to be honest when applying for a mortgage. The paper trail hangs around for a long time.
