The “Lisa Cook Tax”

If we eliminated the type of mortgage fraud Lisa Cook is alleged to have committed, Americans would save $14,000 over the life of a 30-year mortgage. It’s what we at Azoria call the “Lisa Cook Tax,” or the hidden cost every honest borrower pays when mortgage fraud drives up mortgage rates.

In a 2023 study, the Federal Reserve Bank of Philadelphia showed how “owner-occupancy fraud” distorted the mortgage market. In the mid-2000s, about 1 in 15 borrowers lied about living in the homes they bought. By fraudulently posing as owner-occupants, they secured lower owner-occupant mortgage rates instead of the higher investor mortgage rates they should have paid. But once those loans entered the books, they performed far worse: 14% of fraudulent borrowers went delinquent within two years, compared to just 8% of declared investors (75% higher delinquency rate).

That higher-than-expected delinquency forced mortgage lends to absorb those unexpected losses and raise mortgage rates on everyone else as a result. We estimate that this fraud inflated average mortgage rates by about 0.14%.1 On today’s median U.S. home price of $422,400, that 0.14% equates to $14,000 in extra cost over the life of a 30-year fixed mortgage.2

The “Lisa Cook Tax” is real, and is raising costs for honest families who work hard, save up, and seek a mortgage. Mortgage fraud anywhere is a threat to homeownership everywhere.

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  1. Derived from Philadelphia Fed working paper: in 2005–07, fraudulent loans were ~6% of all originations and ~7.2% of the owner-occupied pool; fraudulent vs true owner-occupant two-year default gap ≈ 6.4 pp; assume LGD ≈ 40%. Expected-loss uplift inside the owner-occupied pool ≈ 0.072 × 0.064 × 0.40 = 0.00185 (≈18.5 bps). Weighted by the owner-occupied share (~0.83) gives −15.3 bps. Offsetting that misreporters would have paid investor mortgage rates ≈26 bps higher on ~6% of loans adds back +1.6 bps. Net market-wide effect ≈ −13.7 bps (≈0.14%). ↩︎
  2. A 0.14% bump in mortgage rates means the monthly payment on a $422,400, 30-year fixed loan rises by about $39; multiplying that extra cost by 360 months (30 years × 12) gives $39 × 360 = $14,040, which rounds to roughly $14,000 in additional lifetime payments. ↩︎

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