Yves here. Trump’s efforts to bring the Fed to heel has escalated into a market-roiling battle royale with his “firing” of Fed governor Lisa Cook. As some watchful Twitterati point out:
Dear journalists:
The President has not fired Lisa Cook. The President is *trying* to illegally fire her.
Your words shape people’s reality. Please be accurate in your reporting.
— Alvaro Bedoya (@BedoyaUSA) August 26, 2025
As readers likely know by now, Cook is filing suit to contest Trump’s effort to oust her.
Georgetown law professor, mortage/banking expert and sometimes running buddy (back in the foreclosure fraud days) Adam Levitin has weighed in on the validity of Trump’s removal scheme. Levitin starts with arguments that will likely be voiced in the mainstream media by other legal mavens, that even if Trump’s unproven allegations were true, they do not amount to “cause”. But Levitin makes additional arguments based on the accusations of fraud impropriety. He carefully parses what her representations on the relevant instruments would have amounted to, and in particular, that most observers are confusing “primary residence” with “principal residence” in that a borrower can have only one “primary residence” but can have multiple “principle” residences.
By Adam Levitin, Professor of Law, Georgetown University. Originally published at Credit Slips
President Trump fired Federal Reserve Board Governor Lisa Cook tonight based on unproven allegations by his politically motivated henchman that Cook engaged in mortgage fraud. The President’s actions are illegal. He currently has no legal basis to fire Cook. Instead, he disregarded even a modicum of due process in order to achieve a political goal.
It is clear that the President can remove a Federal Reserve Board Governor “for cause.” Unlike some other federal statutes, “cause” is not articulated in the Federal Reserve Act, but presumably it falls within the ambit of “inefficiency, neglect of duty, or malfeasance” or the like. Whether engaging in mortgage fraud would falls into the scope of “cause” is doubtful, as it is unrelated to the execution of Cook’s office. It’s really no different than conviction for assault and battery arising from a bar brawl. At most, one might claim that the fraud indicates a lack of integrity or some general moral turpitude, but that isn’t what “for cause” removal is about. Just because someone is a rotten human being does not create legal grounds for removal.But even if mortgage fraud were actually an adequate basis for “for cause” removal, Trump has no basis for concluding that Cook actually engaged in mortgage fraud. The only thing the President has to go on is the evidence adduced in FHFA Director Bill Pulte’s criminal referral letter. That evidence would not, standing alone, be grounds for a prosecution.
The only evidence Pulte presents is that (1) Cook took out mortgages on two properties within a couple of weeks, (2) the security instrument for each contains a covenant stating that she intended it to be her “principal residence” for one year hence, and (3) one property was briefly listed by someone as being available to rent. None of that evidence is sufficient proof of mortgage fraud.
Let’s consider the statutes that Pulte referenced in his referral. First, he referenced 18 U.S.C. § 1014, which criminalizes false statements in loan applications. The covenants in the security instruments are not “statements.” They are promises, not representations of current fact, so they cannot be false. A misrepresentation about intended occupancy on the Uniform Residential Mortgage Application could trigger 18 U.S.C. § 1014, but the representation there, that property will be the borrower’s “primary residence,” is very narrow given that no duration is specified. That vagueness cuts against a criminal prosecution.
Second, Pulte referenced 18 U.S.C. § 1344, which criminalizes “knowingly” defrauding a financial institution or obtaining credit “by means of false or fraudulent pretenses, representations, or promises.” That provision could encompass the promises made in the security instrument about the property serving as the borrower’s “principal residence,” but it is far from clear that Cook knowingly made the promise or that it was in fact false.
Most borrowers do not read their security instruments, so it is entirely possible that Cook had no idea what she was promising beyond that she would pay the mortgage note when installments came due. While contract law readily tags consumers with constructive knowledge of the terms and conditions of their prolix form contracts, criminal law doesn’t work like that.
Moreover, even if Cook did know that she was promising to have both properties be her “principal residence,” it isn’t clear that she was making a false promise. The term “principal residence” is not a defined in the security instruments, but it is not the same phrasing as “primary residence” (as used in the UMRA). “Principal” is more capacious than “primary,” and is capable of covering multiple residences. Imagine someone who has an co-op in NYC, a house in the New York suburbs, and a condo in Florida and splits time among all three depending on seasons and days of the week, spending roughly a third of the year at each. That person might very well consider himself to have more than one principal residence. (Pulte also referenced the wire fraud and mail fraud statutes, but those are lard-one statutes that require an underlying predicate fraud, which takes us back to the two statutes already discussed.)
The key thing here is that Trump’s only basis for action is Pulte’s referral letter, and that is not an adequate basis for concluding that Cook actually engaged in any wrong doing. Neither Pulte nor Trump have no idea whether Cook knowingly made the occupancy promise or what she interpreted the promise to mean.
We have a system in which people are innocent until proven guilty, and there is not even a prima facie case of fraud here, only a scant bit of evidence that is consistent with fraud. What’s more, that evidence is basically fruit of the poisonous tree, the result of a politically motivated fishing expedition by Pulte. To my knowledge the FHFA has never previously directed the GSEs to produce the loan files for specific individual borrowers, much less without any prior cause for concern about those borrowers. Instead, it seems that Pulte gave the GSEs a hit list of folks whose mortgages files he wanted to review because of their politics. (The fact that he’s only found three targets says a lot about how his fishing expedition is going.) Yet the President is all to happy to use the inadequate result of his toady’s dirty work to advance his own goal of taking control of the Fed. Whatever “for cause” dismissal means, the President cannot be the sole arbiter of “cause” or else the restriction is meaningless. And if it is to have any meaning, the President would have to, at the very least, give the official in question an opportunity to be heard.
But that’s not what happened. Instead, we have a President disregarding due process in order to achieve a political goal. That’s not how America is supposed to work.
I’ve seen the hitman’s name before, on a youtube about the bed,bath and beyond short squeeze pump and dump.
Rolling Stone Article
An odd duck, to say the least.
“Most borrowers do not read their security instruments, “
The primary residence part has been there on mortgage loan docs since the 1980’s.
Was one of the houses actually a rental? Did the rents find their way to IRS Form 1040, Schedule E?
If those are nothing burgers then print cards to include in the Monopoly board game box so that everyone can escape their lender’s terms and tax laws. After all, nobody is above …
It looks as if you did not read the post in full. That is a violation of our site Policies.
First, Levitin CLEARLY explained why a short-term rental is not an issue. First, lots of people rent their primary residence for a short time if they are having a delay in being able to move ins.
Second, and more important, a short-term in no way, shape or form vitiates principal residence status. It’s pretty common for owners to rent out vacation properties for part of the year to help defray costs while also using it themselves some of the time.
Third, Levitin is charitably understating the security instrument issue. Lenders do not provide them in the normal course of business. My father asked for his when he was going to get a second mortgage so he could build a small retirement home before selling his primary residence. The bank balked at giving it to him. He had to get very insistent for them to cough it up.
He then confirmed their reflexed by not going through with the loan. He was appalled at how one-sided the agreement was.
Lisa Cook has been a Michigan State University professor since 2005. Cook refinanced her Ann Arbor home on June 18, 2021, receiving $203,000 at a 2.825%. Two weeks later on July 2, she purchased a condo in Georgia for $602,000, with a $540,000 mortgage at 3.25%. Cook represented both properties to be her primary/principal residence.
A rental property mortgage entails about a 0.25-0.75% higher rate, and a higher down payment (typically 25% especially on a condo). So there were clear incentives to do this, and it was very unlikely to have been a mistake considering that she only had to put 10% down on her condo property and about $175-250/mo interest savings. This person is an economics professor and would have clearly understood the difference. It’s also almost certain that she would have had to represent to the lender several times in the process that she intended to move into this condominium.
I wager that if her bank records were pulled, it would indicate that she refinanced her house to raise the money to pay the down payment on the condo, which may have been rented privately or to a family member. The media coverage points to a Zillow rental listing a year later, but that isn’t conclusive evidence that the condo was not rented on day one.
https://www.freep.com/story/money/business/2025/08/20/fed-governor-lisa-cook-msu-pressured-to-resign-trump/85743002007/
https://www.reuters.com/world/us/fed-governor-cooks-mortgages-whats-known-whats-not-2025-08-26/
Taking over the post and reciting information that has already been rebutted in the post proper is bad faith argumentation and a violation of our written site Policies.
There is nothing wrong here. Primary and principal residences are not the same despite your attempts to say otherwise.
She’s allowed to own two principal residences. She’s also allowed to rent even a primary residence: https://www.realtor.com/advice/rent/can-you-rent-out-your-primary-residence/
Making Shit Up is a second violation of our written site Policies. I trust you will find your happiness on the Internet, elsewhere.
Are you suggesting that this isn’t a selective prosecution via “fishing expedition”?
If it’s fraud, it’s petty fraud. This is not a wealthy person. A $175 to $250 monthly saving on monthly mortgage payments must have been worth it to lie on a mortgage app. DO we really want a person so petty and dishonest on the Fed Board?
I don’t buy the author’s argument that you can have more than one primary residence. Primary means first. A second home is secondary. In general, this article seems more an exercise in sophistry to excuse this petty fraud than an actual legal argument.
You have a reading comprehension problem. I also covered the issue in the intro.
The issue is primary versus principal. You can have multiple principal residences.
And so you look to have your views imprinted by poor coverage and are unwilling or unable to absorb better information.
I must confess to being confused by some of the legal terminology here. So I asked the google machine what the difference is between a primary and a principle residence. Here is what turned up:
“There is no difference; “primary residence” and “principal residence” are interchangeable terms referring to the home where you live most of the year and use for official documents like tax returns, driver’s licenses, and voter registration. This property serves as your home base and is crucial for tax purposes, as it can qualify for benefits such as lower mortgage interest rates and capital gains exclusions when sold. ”
It seems ironic that a president convicted of 34 felony accounts regarding the falsification of business records would attempt to fire someone else over this issue of a residence.
But maybe I also have a reading comprehension problem?
I had a look at what IRS has on their website:
https://www.irs.gov/pub/irs-pdf/p523.pdf
From the section: Sale of your main home.”:
So there is a definition of what principal residence refers to (at least for when selling it) and which tests are used to determine principal residence.
Category error.
IRS definitions are limited to IRS matters.
Levitin is discussing mortgage security instruments, which is what Cook signed.
And he happens to be one of the very top US experts on mortgage securitizations and credit instruments.
The reason mortgage securitizations run to 900+ pages is they have to navigate so many DIFFERENT bodies of law: IRS REMIC rules, the UCC, bankruptcy law, real estate law in all 50 states, trust law, SEC regulations.
Well, the mortgage expert who wrote the post has a different view than Google: “The term “principal residence” is not a defined in the security instruments, but it is not the same phrasing as “primary residence” (as used in the UMRA). “Principal” is more capacious than “primary,” and is capable of covering multiple residences. Imagine someone who has an co-op in NYC, a house in the New York suburbs, and a condo in Florida and splits time among all three depending on seasons and days of the week, spending roughly a third of the year at each. That person might very well consider himself to have more than one principal residence.”
Message to Democrats: Live By Lawfare, Die By Lawfare.
DC Democrats (seemingly) always pick the dumbest hills to die on/draw a line. Versus, say, SNAP, estate taxes, top income tax bracket, etc.
IMO. YMMV.
That is the real point here. Team Dem hoist on its own petard.
Indeed, it is pretty mind bending, that liberal Democrats never even considered that if Trump somehow survived their legal onslaught, he might after a decade of all this, use his presidency to return the favor.
Liberal Democrats really do think the world is devoid of consequences for them; and to be fair, at least personally, that seems very true. Their consideration for “our democracy” seems very limited indeed.
Agreed. And if we take this to its next step (and my years living in RU made me into a decent chess player able to see 1 move ahead, even though I regularly got clobbered by RU opponents who saw 3 moves ahead, but I digress…..), the Trumpians are raising the retaliation bar without thinking that the Democrats will someday return to power and return the favor…..in spades. And return someday they will. Same mistake all over again, over and over, it’s turtles all the way down. “Is American Science Stuck in a Doom Loop?”– Yes it is, and so is USA politics. And quite possibly the USA itself, not a good thing for any of us living far away from the USA, as its possible demise will send off shock waves affecting all of us. And so I truly hope that the Elephants and the Donkeys settle their grievances amicably.
I have my doubts.
This would appear to be the overarching message. But I doubt that the corpo-Dems can help themselves.
Indeed. This does seem to be a pretty stupid case against Cook and unlikely to succeed, but the intent here is probably simple trolling.
If the Democrats don’t like it, maybe they shouldn’t have spent years going after Trump with “novel” lawsuits. Last Thanksgiving I was at the dinner table with a high ranking Democrat member of Congress who was very concerned that Trump might go after various Democrats now that he was re-elected. My better half, a registered Democrat herself, but one not infected with TDS, piped up and said “Isn’t that what the Democrats just did to Trump for the last few years?”. The reply was “Well that’s one way to look at it, I guess”. These Trump-deranged people really are in la-la land. Funny thing was they singled out Adam Schiff specifically as one who might be unjustly targeted. I had to pipe up at that point and mention that if there was anyone who actually deserved what Trump might have in store, it was the mendacious Schiff.
Live by Lawfare, Die By Lawfare.
Precisely.
Most of the people I work with at more senior levels have had Trump Derangement Syndrome since Election Day, 2016. It only gets worse, apparently. The “34 felonies” pushed them over the edge. That prosecutor is now reaping a serious storm if not a full-blown whirlwind. When I try to explain that Trump was a well known mark for the big banks and that lying about real estate in NYC (and most other places) is a professional sport with Donald J. Trump a cinch for that Hall of Shame, all I get back is a bovine stare (and perhaps a few repetitions of “but, but, but”) when I point out that the money was paid back on time and the banks made bank because they knew what they were doing.
The Dimocrat Establishment will never understand that what goes around comes around. Or that the firm of Clinton Obama Biden Schumer & Pelosi LLC is the ultimate cause much of our current distemper. The only thing that puts Trump outside the mainstream of national American politics is that he says the quiet parts out loud while making sh*t up just as much as the others, both parties. Oh, and he is a much better TROLL than they will ever be. Sorry, couldn’t resist the all-caps shout.
“we have a President disregarding due process”
As always. Apparently, he doesn’t believe in that.
The concept of due process is being disregarded in the deportation sphere as well.
Individual rights as guaranteed by the constitution have been under attack at least as far back as 9/11.
Tampering with the judiciary branch has been political sport long before our current situation.
Our march towards authoritarianism continues. We’re almost there.
.
I was a mortgage loan originator for Wells Fargo from 2000- 2006, until the worm started to turn. Underwriting rules have changed, but Wells allowed up to five Second/ Vacation homes within their portfolio/ secondary market portfolio. These were mandated to be occupied by the primary borrower a certain percentage of the year, and to NOT be full – time non-owner-occupied full time rentals. Investment rental properties had higher rates and different ‘ratios’, depending on income, credit, cash reserves, down payment, etc.
Much changed since then- Mortgage crisis, air bnb / vrbo advent, etc. I suspect underwriting did as well.
The loans closed nearly simultaneously, Underwriters were looking at simultaneous actions, and gave it the green light.
Once again, I suspect Trump is lobbing bombs, starting litigation, sowing chaos, and keeping everyone’s eyeballs afire looking all over the landscape.
Magicians call it misdirection.
In this case, it’s a twofer. It’s getting easier and easier to bet against the US.
Pay no attention to the (little hat) men behind the curtain, just be awed by and afraid of the great and powerful orange monster!
Wasn’t Trump convicted of (37?) counts of felony for lying on loan applications? The financial penalties were reduced/overturned, but unless I am wrong the convictions stand.
I don’t know if he was convicted under 18 U.S.C. § 1014 and/or 18 U.S.C. § 1014, but he stands convicted of very similar offenses, if I am correct.
Lol, good point, but our stupid timeline says “who cares?”
No. He was convicted of improperly maintaining business records as regards expenses posted for legal payments that apparently were ultimately intended as so-called “hush money”. Under NY law that is a misdemeanor, except if the improper maintenance was in furtherance of another crime. The Manhattan DA advanced several theories of the “other crime”, including tax evasion and election interference, but it was never clear to me that those charges were actually proven, and that I believe that is the basis for the appeal.
You are thinking of the civil fraud case in NY brought by the NY AG office that presented the theory that misrepresentations of property valuations was a fraud against “the marketplace” and as the recent (non)decision of the NYS Appellate Division of the Manhattan Supreme Court suggests, there isn’t much agreement on that theory.
The Fannie Mae selling guide, which is a publicly accessible document, goes to great lengths to describe what they consider primary residence for lending purposes and you can only have one. You can have multiple secondary and investment properties. Borrowers may also sign riders and affidavits attesting to the subject property being the primary.
You are correct, but the issue appears to be how that underwriting gets reduced to legalese in the actual “security instrument” which IIUC is a term used to cover state variations such as “Mortgage” or “Deed of Trust”. IANAL, but I think you also have to look at the note and what constitutes “default”.
Please read Levitin with greater care. He made this point, which you and others keep ignoring, that the security instrument describes a principal, not a primary, residence, and the two are different things.
Doesn’t T have two principle residences?
Only Florida.
We should hold high ranking public servants to a standard. Why should anyone excuse her from reading financial documents when in regular life we are bound by them all the time? Lisa Cook’s credentials were relevant to her appointment to the Fed. Why should she get a pass here?
Had you read my comment above, you would have learned that only do banks not routinely provide them (they instead give a summary of terms)., they fight tooth and nail NOT to give them.
And honestly, what is the point? Cook was represented by counsel. She can’t interpret these docs. The lawyer presumably aid things were OK for her situation. The only reason to review is to negotiate terms.
You ALSO miss that there is no fraud if you operated within the boundaries of professional advice. Any fraud rests with the advisor, not the principal. The concept is called secondary liability and has been upheld by the Supreme Court.
I’ve followed your blog since nearly the beginning and watched the shift to the left politically. I loved this blog for economics and investing but it is more and more politics. I have purchased housing since I was 23. I am 71 now. I have been responsible for every document I signed. The housing was purchased in multiple states and each one had specific rules about declaring what was your primary housing. Declaring homestead, declaring property classification – all of this is routine for home buyers. I expect no less from a public servant entrusted with making financial and monetary policy for our country. Why are you giving a pass to mortgage
fraud even if it is rarely prosecuted?
How many angels can dance on the head of a pin? Nobody knows.
So ‘for cause’ is not defined, eh? Well, the President has just defined it.
Me? I’ll bet a milkshake (a good one), she’s history. Along the way – kicking and screaming – she’s going to spend a lot of money protesting. It won’t matter. Moreover, whether it’s her money, or whomever wants to bankroll her, and right or wrong, I predict somebody is going to be out serious amount of money.
Along the way she may become unemployable. Too bad.
And in my opinion, this has zero to do with race.
The occupancy covenants in question both end “. . . unless Lender otherwise agrees in writing, which consent will not be unreasonably withheld, or unless extenuating circumstances exist that are beyond Borrower’s control.” Professor Levitin didn’t mention this so perhaps it’s not significant, but even if principal residence does mean only one primary residence occupied more than six months that first year, it doesn’t seem like a material condition if: (1) consent must not be unreasonably withheld, and (2) consent isn’t even necessary if there are undefined extenuating circumstances. Having a job and/or family situation which requires multiple residences and makes it hard to predict the division of residential times might be seen as extenuating circumstances, and could also make it hard to know when to ask Lender for consent. It’s not even clear to me that the borrower could not make that covenant even already knowing of extenuating circumstances. Would they have to disclose that? I don’t know, but this seems a very thin reed on which to hang criminal intent.
The bigger point is Governance: the executive branch cannot micromanage governance and administration of the Federal Reserve Board of Governors. This is just over reach.
It seems like ages ago, I remember reading an article by Levitin on the 08 financial crisis and a point that stuck with me then was that since securitization of both residential and commercial mortgages occurred (helping to create the bubble), it was a logical fallacy to argue that policies encouraging affordable housing through the Macs could be the cause of the bubble (rather, it was a general decline in underwriting standards among other things). Such a great point and so well argued, a virtue on display here once again.
The point that sticks with me here is the contract that Cook signed relies on an undefined concept with the contract that is being casually conflated by the bad faith actors and parroted by the media (principal vs primary).
But I am also struck by an irony that after the repeated failure to properly prosecute elite malfeasance in America from mortgage mills to pill mills, suddenly these (many hundreds of pages) mortgage documents (when deliberately misread) seem to be enough to try to give Cook the boot, without a hearing and any of that due process that Trump was entitled to during his impeachments. Instead I think it further shows how we are all victim to a rule of government instead of rule of law, where discussions of these critical finer points are secondary to the power and control of the courts.
It should be noted that Bill Pulte personally, and Fannie Mae and Freddie Mac as entities, have been operating in violation of federal law since March 2025. Specifically 12 USC 4512(g) since Pulte is both the head regulator and board chairs for each of the companies.