What's at stake: President Trump moved to fire Federal Reserve Gov. Lisa Cook via social media on Aug. 25, five days after Housing FInance Agency Director Bill Pulte raised allegations that Cook had engaged in mortgage fraud. Cook challenged her removal in court and was granted a preliminary injunction Tuesday night.
Key insight: Pulte
Forward look: Lawyers are questioning how Pulte received what he called a "tip" to investigate Cook, if it was directed by the White House, and if the FHFA is targeting Democrats who are perceived threats to the president.
Federal Housing Finance Agency Director Bill Pulte may have violated federal privacy law by disclosing personal information about Federal Reserve Board Gov. Lisa Cook on social media, lawyers said.
The Federal Privacy Act of 1974 holds government employees to strict standards for dealing with and disseminating personal financial information in their possession, and employees receive extensive training to ensure that individuals' personal information is not disclosed to the public.
Pulte also may have violated the Right to Privacy Act of 1978, which outlines the formal procedures for government agencies and officials to access personal financial records, lawyers said. In addition, the U.S. government maintains standards of ethical conduct for employees in the executive branch that prohibits misuse of nonpublic information for financial transactions or private gain.
Pulte alleged on Aug. 20 in a tweet on X that Cook committed mortgage fraud by taking out two home loans in 2021 and listing both as primary residences. Pulte posted
The
Pulte has written more than 40 tweets since Aug. 20, the vast majority about Cook and occupancy fraud, which mortgage experts said is highly unusual for an FHFA director.
In one example, he wrote: "Lisa Cook took out two BANK LOANS, two weeks apart, one in Michigan, and one in Atlanta, falsely claiming primary residence ON BOTH. This cannot happen in America!"
The Federal Privacy Act of 1974 prohibits federal agencies from disclosing "to any person" any record about an individual that the agency maintains, including about their financial transactions, according to several lawyers, including two former FHFA attorneys. Privacy laws also prohibit government agencies from sharing the information with other government agencies.
FHFA did not respond to requests for comment.
Adam Levitin, the Carmack Waterhouse professor of law and finance at Georgetown University Law Center, said that by disclosing Cook's information on X in his role as FHFA director, Pulte met the statutory definition of violating privacy laws. Pulte also disclosed information about Cook's loans to the general public on X, as well as to the Justice Department and the White House.
"That's disclosure by a federal agency of a record about an individual that the agency maintains," Levitin said. "It looks as if Pulte may have committed a federal misdemeanor. This is an incredibly dangerous abuse of office. That's true regardless of whether Cook committed fraud herself. Cook might also have a civil suit against the government for violating her privacy rights."
However, the Federal Privacy Act does not have an express exception for information disclosed in the public domain, and there is a judicial split about whether such an exception exists, Levitin said.
The law does, however, have a so-called "routine use" exception that allows disclosure to the DOJ, but lawyers say it is unclear if the exception applies to disclosures made to the president or someone in the White House. Disclosure to the public through X is not authorized under the routine use exception, Levitin said.
"FHFA was absolutely collecting and using a system of records that is under its control as conservator," he said, which may have allowed the agency to obtain Cook's records.
OCC privacy bulletin
The scrutiny of Pulte's disclosures comes as the Office of Comptroller of the Currency issued a bulletin this week
However, the bulletin appeared to only address one party affiliation, which the OCC said involved "specifically targeting individuals associated with conservatism and the political right."
The OCC bulletin, which is nonbinding, said financial institutions may not release a customer's financial records unless an agency certifies in writing that it has complied with its obligations under the RFPA. The RFPA generally requires that a customer receive written notice of the government's intent to acquire financial records, an explanation of the purpose of the request, and a statement regarding steps the customer may follow to protect the information.
Cook has said that she first learned of the allegations of mortgage fraud and of her being fired by the president through social media posts, and was not personally notified by the FHFA about how to protect her privacy rights, which appears to be a violation of the RFPA, lawyers said.
However, because Fannie and Freddie are exempt from the Right to Financial Privacy Act — a law that applies to most other financial institutions — the applicability in this case is uncertain.
A lawyer with expertise on privacy laws who spoke anonymously for fear of retribution said that "putting someone's address, or something very close to their address, and their loan amount in a public document that is released to the press — that would have been considered illegal and something you should not do."
The lawyer said that the privacy laws were enacted after it was disclosed that former President Richard Nixon had an enemies list, which spurred Congress to pass stiff privacy laws because federal officials were "going through government files trying to selectively prosecute people."
Enemies List?
The Trump administration "is using individualized pressure and government power in different ways that could be chilling," said Graham Steele, a former assistant secretary for financial institutions at the Treasury Department.
In March, Pulte fired 14 board members at Fannie and Freddie and appointed himself chairman of both boards, claiming that as their conservator, FHFA has total authority over the operations of the government-sponsored enterprises. Democrats have alleged that Pulte violated the Housing and Economic Recovery Act of 2008, known as HERA, which prohibits Pulte from holding any position at Fannie and Freddie, according to a statement by Sen. Jack Reed, D-R.I.
"If any kind of accused lawbreaking, including checking the box on a mortgage application, allows someone to be removed from their position, and he is serving in an illegal manner as the chairman of the board of both Fannie and Freddie — which is clearly illegal — why isn't he removed for cause because he is illegal in the way he's operating?" Steele said.
FHFA has broad powers over Fannie and Freddie as the GSEs' conservator, a role the agency has held since the onset of the Global Financial Crisis in 2008. But several lawyers said that the FHFA's power is not universal and does not include using mortgage information in ways that do not comport with the law. Lawyers are raising questions about how Cook's mortgage files were obtained, and whether Pulte was acting on direction from Trump or the White House in his disclosures about Cook and other Democrats, including Sen. Adam Schiff, D-Calif., and New York Attorney General Letitia James.
The FHFA does not maintain a system of mortgage records, but the FHFA's Office of the Inspector General does maintain certain
Neither of Cook's loans are delinquent, which is what typically prompts an investigation and a notice to the lender to buy back a loan in order to prevent losses on Fannie and/or Freddie's balance sheet. Cook's loans reportedly were both originated by credit unions.
Mortgage experts said it is highly unusual for criminal referrals to be released to the public, and added that Pulte's release before an investigation had been conducted — much less concluded — suggests a pattern of behavior consistent with political motivation.
"One way to undermine the mortgage market is to basically weaponize [FHFA, Fannie and Freddie] against the president's political enemies," Steele said
Cook is the first Black woman to sit on the Federal Reserve's Board in its 111-year history, and was confirmed in 2022 on a party-line vote of 51-50, with Vice President Kamala Harris casting the tie-breaking vote.
Her lawsuit states that the Federal Reserve Act only allows the president to remove a Fed governor "for cause," and argues that the allegations presented by Trump and Pulte do not meet that standard, which has been understood in case law to be related to "inefficiency, neglect of duty or malfeasance in office." The president's attorneys argued in their suit that a president may not remove Fed officials for "mere policy differences," but argued that the president has broad authority to decide what violations constitute cause and that courts do not have the power to question those decisions.
Brian Levy, Of Counsel at the law firm Katten & Temple, said more facts on the allegations of mortgage fraud will need to come to light to determine if Cook's actions constitute a violation, and that they are less important to the president than their utility as "cause" for removing her.
"It's just not that simple to conclude that somebody did something wrong without a lot more facts and the process of law," said, "And I feel like that wasn't really important to the president deciding to fire Lisa Cook. They were just looking for something to identify a reason so that they had cause. I don't know if this raises sufficient cause under applicable law, but they wanted to have something."
Levy noted that in offering a cause for Cook's termination, the president has to some degree acknowledged the limitations of the 1935 Supreme Court case,
"With respect to this particular issue, there is some recognition that cause is important — otherwise why would they bring it up?" said Levy. "It might be flimsy or it might be valid. But this is certainly consistent with what is happening — pushing the limits and seeing what the courts will allow."
Mitch Kider, chairman and managing partner at Weiner Brodsky Kider PC, said that making a false statement to a mortgage lender is a criminal offense, but the remedies sought are typically civil.
"It is unusual for an agency head to publicly make allegations of fraud before an investigation has taken place," Kider said. "I can't tell you if I've ever seen a criminal prosecution based on occupancy status."
Under a little-known FHFA rule called the Suspended Counterparty Program, the agency can suspend an individual or company, which can be debarred from doing business with Fannie or Freddie though it allows for specific rights of appeal. More than half of the individuals referred to FHFA for suspension are serving prison terms for criminal offenses, according to a person with knowledge of the FHFA's program.
The schemes that the OIG investigates typically involve loan origination fraud, plots by bank executives to rip off a Federal Home Loan Bank, deed theft, appraisal fraud, multifamily loan fraud, and COVID relief fraud, the FHFA-OIG said in its most recent
Last Thursday, Pulte cancelled a press conference to discuss what FHFA said would be about "the matter of Lisa D. Cook." On Friday, Pulte
"I'm not going to explain our sources and methods, where we get tips from, who our whistleblowers are," Pulte said on CNBC last week. "This is exactly why you have whistleblower protections, this is exactly why you don't intimidate people who are your sources who give you information, so it would be reckless for me to do that."
Levitin, however, said that Pulte was "reckless," in releasing information on Cook to the public.
"A privacy interest can exist for publicly available but 'practically obscure' information — which would certainly cover a mortgage filing," Levitin said. "Given the state of the law, I don't think Pulte's counsel could have told him that the Federal Privacy Act does not apply. Unless he was told that he had clean sailing, he was acting recklessly here, which provides the necessary intent for a criminal violation."
Since Pulte's revelations about Cook, journalists have uncovered occupancy fraud by
In addition,
"This is what politics has become," said Kider. "It's highly unusual, it's atypical, but it seems to be what's going on in today's environment. It's very unfortunate."
