The Fed's Independence Test: A Mortgage Probe and Political Firestorm Collide

The U.S. Department of Justice has launched a criminal investigation into Federal Reserve Governor Lisa Cook over allegations of mortgage application fraud, according to a report by Fox News. The probe centers on three home loans secured by Cook prior to her appointment as a Fed governor. These include a $361,000 15-year loan for a Cambridge, Massachusetts, condominium; a $203,000 15-year mortgage for a property in Ann Arbor, Michigan; and a $540,000 30-year loan for a luxury condo in Atlanta, Georgia. The loans, issued in 2021, were reportedly secured with preferential terms reserved for primary residences, a status that is now in question due to the allegations [1].

The issue stems from referrals made by Bill Pulte, a Trump appointee to the federal agency that regulates Fannie Mae and Freddie Mac. Pulte claimed that Cook misrepresented the purpose of the homes in her mortgage applications. Specifically, he alleged that she did not disclose the Cambridge property as an investment and instead listed it as a second home. Pulte’s allegations prompted the Justice Department to open the probe, which is currently examining whether Cook’s mortgage applications contained fraudulent or misleading information [1].

Cook has denied the allegations, with her lawyer stating that she “did not ever commit mortgage fraud.” The governor’s financial disclosure report, filed with the U.S. Office of Government Ethics on June 15, 2025, lists all three mortgages along with her income, retirement accounts, and investments. The report does not clarify how Cook intended to use the Michigan and Georgia homes, but does confirm that she earned over $50,000 annually in rental income from the Cambridge property [1].

The allegations have fueled a broader legal and political dispute between Cook and Donald Trump, who attempted to remove her from her position as a Federal Reserve governor. Cook filed a lawsuit in federal court on August 28, arguing that Trump’s actions are unlawful and threaten the independence of the Federal Reserve. The case is now set to be heard by a judge and could ultimately reach the Supreme Court [1].

In response to the controversy, nearly 600 economists, including Nobel laureate Joseph Stiglitz and former Council of Economic Advisers Chair Jared Bernstein, have signed an open letter in support of Cook. The letter emphasizes the importance of preserving the Federal Reserve’s independence from political interference, warning that attempts to remove Cook could undermine public confidence in the central bank. The signatories argue that unproven accusations and threats of removal pose a risk to the institution’s credibility and the broader economic stability of the country [2].

Cook’s case has drawn national attention not only for its legal and political implications, but also for its historic significance. As the first Black woman to serve as a Federal Reserve governor, her potential removal from the board would mark another unprecedented moment in the institution’s history. The outcome of the Justice Department’s investigation and the ongoing legal battle could set a precedent for how political figures interact with the central bank’s operations and governance.

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[1] Lisa Cook's three home loans at center of Trump fight over ... (https://www.foxbusiness.com/politics/lisa-cooks-three-home-loans-center-trump-fight-over-federal-reserve-seat)

[2] Nearly 600 economists support Fed Governor Lisa Cook ... (https://www.foxbusiness.com/politics/nearly-600-economists-back-lisa-cook-fed-independence-open-letter)