By Jeanne Sahadi, CNN

(CNN) — As part of his effort to gain control over the Federal Reserve, President Donald Trump is attempting to fire Fed Governor Lisa Cook based on allegations that she may have committed mortgage fraud.

No charges have been filed against Cook as of this writing. But she has filed a lawsuit challenging Trump’s effort to remove her.

There are many types of mortgage fraud. The perpetrator could be any person or company involved in the mortgage transaction, such as the homebuyer, lender, mortgage broker or appraiser. Or it could be carried out by investors or criminal rings using “straw buyers” who agree to be the official purchaser of a property to secure the mortgage.

But based on what is known of the administration’s allegations, it appears the accusation is that Cook may have committed what’s known as “occupancy fraud” pertaining to mortgages she had on two properties — one in Ann Arbor, Michigan, and one in Atlanta.

What is occupancy fraud?

At the federal level, someone commits occupancy fraud when they falsely declare a property will be their primary residence in order to obtain a mortgage tied to a federally insured bank ?or credit union or to federal government agencies, like the Federal Housing Administration.

Occupancy fraud was the most common type of mortgage fraud during the mid-2000s housing bubble, according to the US Treasury’s Financial Crimes Enforcement Network. And a 2023 report from the Federal Reserve Bank of Philadelphia found that such fraud wasn’t limited to the housing bubble, “but also persists through more recent times.”

Why is falsely declaring a ‘primary residence’ a big deal?

Typically, a person seeking a mortgage for a primary residence is more likely to get a lower interest rate — with less stringent credit requirements and a smaller down payment — than they would for a second home or an investment property.

That’s because mortgages on primary residences typically have lower delinquency rates than mortgages for other property purchases.

For instance, “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,” said criminal defense attorney Jeffrey Buehner, who has represented clients accused of white-collar crime, including mortgage fraud. (Buehner noted he is not connected to nor commenting on the situation between the president and Cook.)

How is occupancy fraud classified and what are the penalties?

Under federal law, occupancy fraud is a felony. If someone is found guilty, they could face up to 30 years in prison and up to $1 million in fines.

(Depending on state law, it also could be subject to prosecution in the jurisdiction where the fraud is alleged to have occurred, Buehner said.)

But if prosecuted under the federal statutes, the extent of the punishment may fall far short of the maximum sentencing and fine guidelines.

“The penalties are driven by the loss amount,” said Christine Adams, a civil and criminal defense attorney who used to work as a federal prosecutor on complex fraud matters, including mortgage fraud, for the United States Attorney’s Office in the Central District of California. Like Buehner, Adams is not connected to the Trump-Cook situation.

In other words, 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? And did any entity involved lose money as a result? If so, was it a large amount?

During her time as a federal prosecutor, Adams said that her office would only take on cases in which the losses exceeded amounts specified under federal guidelines in place at the time.

How can prosecutors prove occupancy fraud?

If a person is charged with occupancy fraud, the prosecution must show beyond a reasonable doubt that a defendant committed the crime, Buehner said.

How that is done depends on the particulars of a case. But one way a prosecutor might approach it, Adams said, is “you’ll talk to whoever spoke to the person who secured the loan. What did they say to you? Those are admissions. You will look at emails, text messages and all their conduct. Did they do or say anything that indicated they knew (what they did) was wrong?”

And, she added, it could mean tying together facts of their life to show it’s unlikely they didn’t falsely and intentionally declare a property a primary residence. “It could be ‘You bought this home in Park City, but you live and work in Pasadena and your kids go to school there.’”

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