Cook allegations suggests new mortgage fraud priorities

President Trump's attempt to fire Federal Reserve Governor Lisa Cook over mortgage fraud allegations has been called part of a larger crackdown, which suggests there could be value in looking at potential changes it points to for lenders.

Housing regulator Bill Pulte has claimed alleged fraud findings like Cook's are not political, in contrast to other views, and he has said they'll have broader application, potentially changing the historical nature of the government-sponsored enterprises' occupancy status oversight.

What follows are a few ways the influential government-sponsored enterprises Pulte oversees may be treating this type of misrepresentation differently in the future. (Pulte's agency had not immediately responded to inquiries about this article at deadline.)

Faster comparisons of loan files through automation

With artificial intelligence technology, a government-sponsored enterprise can do what used to be two months of manual investigation on loan files in seconds, according to a joint press conference Fannie Mae held with Trump ally Peter Thiel's Palantir earlier this year.

It's unclear whether Palantir, which has said it's only working with Fannie to start, played a role in bringing the occupancy fraud allegations against Cook, which involve multiple loans, one of which Pulte has said was used as Federal Housing Loan Bank collateral. 

The evolution of AI makes it easier to compare data from two different loans made at different times to a single borrower.

Also, Fannie and Freddie have been amassing digitized loan information that they've been referencing to validate data and streamline the mortgage process in various ways, such as allowing appraisal waivers on loans with sufficient property valuation records.

While there are some privacy restrictions on certain mortgage data, the GSEs' information is largely considered part of the public record.

A higher priority on occupancy fraud vs. other types

Occupancy fraud is considered a felony and does harm mortgage companies and investors because it results in underpricing for a loan's risk.

However, a finding of it on a single loan historically has gotten prioritized behind schemes defrauding multiple people at a greater cost. 

One sign the incidence of occupancy fraud findings has been ramping up more quickly than other types of misrepresentation exists, but it does have a caveat, according to a recent Cotality study.

"The number of owner-occupied properties listed for rent within the last 180 days increased to 50%, the largest quarter-over-quarter increase; however, other indicators point to stabilized occupancy risk," the company said in its report.

Any type of fraud can raise the risk a lender who sells a loan to the GSEs has to repurchase it and increased incidence of this could be a concern for the industry.

A shift away from inspector general involvement?

The inspector general's office for Pulte's agency has often had a hand in publicizing fraud concerns affecting that entity and the GSEs, and generally only after more decisive court findings.

Although the fact the IG's office doesn't seem involved in the most recent allegations may be explained by the fact it lacks a permanent chief, current circumstances do seem to indicate the watchdog will be less involved and the GSEs' oversight agency itself will be more aggressive.