Mortgage fraud is a serious allegation, one that President Donald Trump has hurled toward three of his staunch critics: Federal Reserve Governor Lisa Cook, New York State Attorney General Letitia James and California Senator Adam Schiff.

Then there’s Texas Attorney General Ken Paxton, who currently faces allegations that the mortgages he signed contained inaccurate statements.

Trump himself has also faced scrutiny over real estate and mortgage dealings. In 2023, a New York judge ruled that he committed fraud by inflating property values to secure favorable loans. Before that, he launched Trump Mortgage LLC in 2006. It closed a year later, with at least one lawsuit filed against it.

Given these high-profile cases, it's worth taking a closer look at what mortgage fraud actually is, how it can be committed, and why these allegations carry legal and financial consequences.

What's Happening?

Ed Martin, who Trump tapped in May to oversee the Weaponization Working Group for the Department of Justice, has been named a special prosecutor in the mortgage probes against James and Schiff, according to NPR.

Cook's lawyers, meanwhile, are seeking an emergency restraining order to prevent Trump from firing her after he alleged mortgage fraud. The case, which began Thursday, Aug. 28, could have lasting implications for the Federal Reserve's independence, amid Trump's criticism of its decision not to cut interest rates.

Rate cuts, Trump argues, would make homes more affordable. High prices, elevated mortgage rates, and concerns over the labor market are currently keeping buyers sidelined.

But it’s not that simple. The latest Zillow analysis finds that for a median-income family to afford a typical U.S. home, either prices would need to drop 18% or mortgage rates would need to fall to 4.43%--that’s a highly unlikely scenario. Mortgage payments are now nearly $1,000 higher per month than pre-pandemic levels, making homeownership increasingly unaffordable for many.

Is Mortgage Fraud Common?

With homes so expensive, mortgage fraud has been increasing across the U.S. as people try to secure loans or financial advantages.

During the second quarter of 2025, financial data firm Cotality--previously known as Corelogic--analyzed six categories of mortgage fraud: identity, transaction, property, income, occupancy, and undisclosed real rstate. All the categories except for Occupancy saw an increase in Q2 2025.

• Undisclosed real estate debt rose 12% this year, compared with a 5.9% decline year over year in 2024.
• Transaction fraud risk increased 6.2% this year, following a 4.9% increase last year.

What To Look For?

Those who commit mortgage fraud typically fall into a few patterns:

• Inflating income or assets: Borrowers or sellers exaggerate earnings, savings, or property value to qualify for larger loans than they could legitimately get.
• Falsifying documents: This includes fake pay stubs, tax returns, or appraisals to convince lenders that the borrower can repay the loan.
• Misrepresenting property value: Sellers or appraisers overstate a home's value so buyers can secure a bigger mortgage, or lenders can approve riskier loans.
• Straw buyers or identity theft: Using someone else's identity or credit to obtain a loan without intent to repay.

In short, the goal is usually access to credit or financial gain, often at the expense of lenders, rather than just cutting personal costs.

What Are The Consequences?

If mortgage fraud is discovered, it can lead to serious financial consequences, including loan denial or foreclosure for borrowers, legal penalties, and credit damage. Lenders and investors can face financial losses, regulatory fines, and higher insurance costs, while widespread fraud can distort home prices, destabilize the market, and reduce lending confidence.

Mortgage fraud can carry federal penalties of up to 30 years in prison per count, as well as fines, while states also prosecute it with varying prison terms depending on local laws and the amount involved.

What's The Backstory?

The U.S. currently has a housing crisis. Not enough homes are being built, particularly in high-demand areas. And tariffs are making it worse by raising the cost of building materials. As a result, consumers end up paying for the tariffs in the form of higher home prices, according to the National Association of Home Builders.

Stagnant wage growth is also to blame. Household incomes have not kept pace with rising housing costs. Zillow lists the typical mortgage payment is now nearly $1,000 more per month than before the pandemic, making homes far less affordable for median-income families.

Investors who buy homes to rent or flip have further tightened the market, reducing inventory available to first-time buyers.

What's The Market Reaction?

Real Estate ETFs are underperforming the broader market. Even billionaire hedge fund manager Ray Dalio is wary of the sector.

Here’s a list of real estate exposed exchange-traded funds, almost all of which are on the downtrend.

What Happens Next?

Trump’s mortgage fraud claims against his critics, and the subsequent investigations headed by Martin, don’t seem to be moving the needle when it comes to winning voters. A recent Quinnipiac University poll shows just 37% of registered voters approve of Trump's job performance, while 55% disapprove and 7% are undecided--a new low for his second term.

Amid looming threats to take over the Fed, Trump has also suggested merging Fannie Mae (OTC:FNMA) and Freddie Mac (OTC:FMCC) into a new entity, potentially called The Great American Mortgage Corporation with the ticker "MAGA“--a riff on his campaign slogan.

While details remain unclear, the proposal comes as the Federal Housing Finance Agency allows Fannie and Freddie to use VantageScore 4.0, potentially expanding the mortgage market for millions of first-time buyers, highlighting the merger's potential impact on the broader financial sector.

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