[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]
OVERSIGHT OF THE FEDERAL HOUSING
FINANCE AGENCY'S ROLE AS
CONSERVATOR AND REGULATOR OF THE
GOVERNMENT SPONSORED ENTERPRISES
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTEENTH CONGRESS
SECOND SESSION
__________
SEPTEMBER 27, 2018
__________
Printed for the use of the Committee on Financial Services
Serial No. 115-120
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
______
U.S. GOVERNMENT PUBLISHING OFFICE
32-371 PDF WASHINGTON : 2018
HOUSE COMMITTEE ON FINANCIAL SERVICES
JEB HENSARLING, Texas, Chairman
PATRICK T. McHENRY, North Carolina, MAXINE WATERS, California, Ranking
Vice Chairman Member
PETER T. KING, New York CAROLYN B. MALONEY, New York
EDWARD R. ROYCE, California NYDIA M. VELAZQUEZ, New York
FRANK D. LUCAS, Oklahoma BRAD SHERMAN, California
STEVAN PEARCE, New Mexico GREGORY W. MEEKS, New York
BILL POSEY, Florida MICHAEL E. CAPUANO, Massachusetts
BLAINE LUETKEMEYER, Missouri WM. LACY CLAY, Missouri
BILL HUIZENGA, Michigan STEPHEN F. LYNCH, Massachusetts
SEAN P. DUFFY, Wisconsin DAVID SCOTT, Georgia
STEVE STIVERS, Ohio AL GREEN, Texas
RANDY HULTGREN, Illinois EMANUEL CLEAVER, Missouri
DENNIS A. ROSS, Florida GWEN MOORE, Wisconsin
ROBERT PITTENGER, North Carolina KEITH ELLISON, Minnesota
ANN WAGNER, Missouri ED PERLMUTTER, Colorado
ANDY BARR, Kentucky JAMES A. HIMES, Connecticut
KEITH J. ROTHFUS, Pennsylvania BILL FOSTER, Illinois
LUKE MESSER, Indiana DANIEL T. KILDEE, Michigan
SCOTT TIPTON, Colorado JOHN K. DELANEY, Maryland
ROGER WILLIAMS, Texas KYRSTEN SINEMA, Arizona
BRUCE POLIQUIN, Maine JOYCE BEATTY, Ohio
MIA LOVE, Utah DENNY HECK, Washington
FRENCH HILL, Arkansas JUAN VARGAS, California
TOM EMMER, Minnesota JOSH GOTTHEIMER, New Jersey
LEE M. ZELDIN, New York VICENTE GONZALEZ, Texas
DAVID A. TROTT, Michigan CHARLIE CRIST, Florida
BARRY LOUDERMILK, Georgia RUBEN KIHUEN, Nevada
ALEXANDER X. MOONEY, West Virginia
THOMAS MacARTHUR, New Jersey
WARREN DAVIDSON, Ohio
TED BUDD, North Carolina
DAVID KUSTOFF, Tennessee
CLAUDIA TENNEY, New York
TREY HOLLINGSWORTH, Indiana
Shannon McGahn, Staff Director
C O N T E N T S
----------
Page
Hearing held on:
September 27, 2018........................................... 1
Appendix:
September 27, 2018........................................... 95
WITNESSES
Thursday, September 27, 2018
Grimes, Simone................................................... 6
Layton, Donald, Chief Executive Officer, Federal Home Loan
Mortgage
Corporation.................................................... 54
Mayopoulos, Timothy, Chief Executive Officer, Federal National
Mortgage Corporation........................................... 56
Watt, Hon. Melvin, Director, Federal Housing Finance Agency...... 57
Wertheimer, Hon. Laura, Inspector General, Federal Housing
Finance
Agency......................................................... 28
APPENDIX
Prepared statements:
Grimes, Simone............................................... 96
Layton, Donald............................................... 101
Mayopoulos, Timothy.......................................... 119
Watt, Hon. Melvin............................................ 138
Wertheimer, Hon. Laura....................................... 154
Additional Material Submitted for the Record
Duffy, Hon. Sean:
Letter from the Manufactured Housing Association for
Regulatory
Reform..................................................... 181
Layton, Donald:
Responses to questions for the record from Representative
Luetkemeyer................................................ 183
Mayopoulos, Timothy:
Responses to questions for the record from Representative
Luetkemeyer................................................ 186
Watt, Hon. Melvin:
Responses to questions for the record from Representatives
Huizenga, Luetkemeyer, and Meeks........................... 188
Wertheimer, Hon. Laura:
Responses to questions for the record from Representative
Sinema..................................................... 194
OVERSIGHT OF THE FEDERAL HOUSING
FINANCE AGENCY'S ROLE AS
CONSERVATOR AND REGULATOR OF THE
GOVERNMENT SPONSORED ENTERPRISES
----------
Thursday, September 27, 2018
U.S. House of Representatives,
Committee on Financial Services,
Washington, D.C.
The Committee met, pursuant to notice, at 10:34 a.m., in
room 2128, Rayburn House Office Building, Hon. Jeb Hensarling
[chairman of the committee] presiding.
Present: Representatives Hensarling, Royce, Lucas, Posey,
Luetkemeyer, Huizenga, Duffy, Hultgren, Ross, Pittenger,
Wagner, Rothfus, Tipton, Williams, Poliquin, Hill, Emmer,
Zeldin, Trott, Loudermilk, Mooney, Davidson, Budd, Kustoff,
Tenney, Hollingsworth, Waters, Maloney, Velazquez, Sherman,
Meeks, Clay, Green, Cleaver, Perlmutter, Foster, Kildee,
Delaney, Sinema, Beatty, Heck, Vargas, Gottheimer, Crist, and
Kihuen.
Chairman Hensarling. The Committee will come to order,
without objection.
The Chair is authorized to declare a recess of the
Committee at any time, and all members will have 5 legislative
days within which to submit extraneous materials to the Chair
for inclusion in the record.
This hearing is entitled, ``Oversight of the Federal
Housing Finance Agency's Role as Conservator and Regulator of
the Government Sponsored Enterprises.'' I now recognize myself
for 3-1/2 minutes to give an opening statement, although I warn
others, I may go over.
Ten years ago, at the time of the financial crisis, Fannie
and Freddie were thinly capitalized. They bought loans for as
little as 3 percent down. They issued mortgage-backed
securities encompassing roughly half of all first lien
mortgages, and they were embroiled in multiple scandals.
Fast forward to today. The GSEs remain thinly capitalized.
They still securitize half of new mortgages. They are buying,
once again, high-risk, 3 percent down loans, and surprise, they
are once again embroiled in scandal.
Recent headlines from a newspaper, ``Housing Finance System
Roiled by Maze of Investigations.'' Let me read the first two
paragraphs. ``The U.S. Housing Finance Administration has been
rocked by a series of investigations that have raised fresh
doubts about the Federal Government's management of the vast
system that supports most of the Nation's mortgages. The
country's top housing regulator is under investigation for
alleged sexual harassment.''
``The watchdog looking into his behavior is herself under a
probe, partly over claims that her office is too cozy with his.
And the outgoing CEO of the largest mortgage financier was
faulted in a report for failing to disclose potential conflicts
stemming from a romantic relationship.''
These headlines are not fake news. And so what we know is
after 10 years, our housing finance is in dire need of reform,
and FHFA is in dire need of oversight. Should anybody need a
refresher course, the Housing and Economic Recovery Act of
2008, known as HERA, directs the Director of FHFA to oversee
the GSEs, and to ensure they are operated in a safe and sound
manner to ensure that the housing finance market is resilient
and competitive; that they are operated in the public interest.
But we have already heard testimony within this hearing room
that gives strong evidence that they are not.
So for the past 7 months, this Committee has been
investigating FHFA's conduct as the supervisor and regulator of
the GSEs, and this has been strongly influenced by a series of
reports by their inspector general, who we will hear from
shortly. Those reports would give very strong evidence that
Fannie Mae has engaged in excessive spending inconsistent with
its conservator status, and that FHFA failed to control that
spending. There is reason to believe that Fannie Mae avoided
the FHFA lobbying regulations, and FHFA failed to properly
enforce these regulations. There is evidence that the GSEs have
attempted to evade restrictions on CEO salaries with the FHFA's
consent. There is strong evidence supporting that Fannie Mae
failed to appropriately address senior officer conflicts in
FHFA's failure to exercise adequate oversight in this area, and
the list goes on and on.
It is somewhere between folly and peril in legislative
malpractice to continue to entrust almost all of housing
finance to two GSEs and one unelected, unaccountable individual
with omnipotent powers, a position that the Fifth Circuit has
found unconstitutional.
Now, we have three panels today. Our third panel, we will
hear from Director Watt, as well as the CEO of Fannie, and the
CEO of Freddie, as well.
Our second panel will contain the Inspector General for the
Federal Housing Finance Agency, and our first panel consists of
one witness, Miss Simone Grimes. Welcome, Ms. Grimes.
Ms. Grimes is a Senior Staffer, and she is a special
advisor at FHFA. She has made a serious allegation of sexual
harassment against Director Watt. She has filed an EEOC claim
and a civil suit under the Equal Pay Act.
We all know that accusations are a daily occurrence in this
town, but Ms. Grimes did not just bring an accusation; she
brought evidence, as to substantiate her claim. As requested,
she has submitted to an interview of the Financial Services
Committee staff, and she brought evidence as well. She deserves
to be heard and she needs to be heard, and she has been invited
as a witness.
Now, given what is happening at the other end of the
Capitol as I speak, I am not sure this hearing will be heard,
but it should. And importantly, Director Watt deserves to be
heard and he will be.
There has been one investigation by the Postal Inspector
General of Ms. Grimes' claims, and another is currently ongoing
at the office of the FHFA Inspector General, who we will hear
from shortly.
This investigation must be independent, must be impartial,
must be fair, and must be thorough. And we expect Director Watt
to cooperate.
I believe the record will show that Director Watt did not
participate or cooperate in the first investigation, asserting
a legal privilege which many do not recognize.
As Chairman of the Committee, I will not hesitate to use my
full subpoena power to compel cooperation where necessary. I am
also aware that our Committee is not a court of law.
We are not best-equipped to be the finder of fact nor the
dispenser of justice. That is best left to a forum with formal
rules of evidence, due process, and the rules of civil
procedure.
So after both parties are heard, we will follow closely the
FHFA investigation and Ms. Grimes' civil suit as we continue to
conduct our oversight and continue to conduct our
investigation.
But today, I expect both parties to be heard and fully
heard and treated fairly. Federal employees must be able to
work in a hostile-free environment, free of harassment, free of
discrimination and no one is above the law. And it is the
business of this Committee to ensure that takes place.
Now I know that this charge does not exist in a vacuum, so
I want to make a few comments about it. One, again, I am
disturbed that anyone would hold themselves above the law or
believe that standards apply to their employees that do not
apply to them.
I am also disturbed that the seriousness of a charge can
somehow shift the burden of persuasion or the burden of proof
to the accused. A presumption of innocence is foundational to
our society, as is due process.
I am the father of two teenagers. I want them to dream big
dreams. I want them to live purpose-driven lives. I want them
to achieve the happiness that comes with earned success, using
their hard work and talents.
It is horrific to me, to think that, one day, when my
daughter enters the workforce, that she might be harassed, that
she might be discriminated against. That somebody might force
themselves upon her or hold out a career advancement on some
type of quid pro quo.
That is intolerable to me, and I would want her to have the
courage to bring those charges forward. And I would want
society to support her and to take her charges seriously and I
would want justice. Too long these charges were not taken
seriously in American society.
But I am also the father of a teenage son. And when he
enters the workforce, it is intolerable to me to think that a
mere accusation of impropriety would somehow deny him the
presumption of innocence, somehow deny him his due process.
That, too, is intolerable to me. And in our society, as has
been stated before, where do you go to get your reputation
back?
These are, indeed, troubling issues, and so whatever
happened between Ms. Grimes and Director Watt should not be
about symbolism, it ought to be about facts, it ought to be
about equality before the law, it ought to be about fairness,
and ought to be about justice.
I do believe there is at least one inescapable conclusion,
and that is, there is something amiss at FHFA and this
Committee has to get to the bottom of it.
And I will yield 5 minutes to the Ranking Member for an
opening statement.
Ms. Waters. Thank you very much, Mr. Chairman. We are here
today for a hearing on ``Oversight of the Federal Housing
Finance Agency's Role as Conservator and Regulator of the
Government Sponsored Enterprises.''
FHFA plays a critical role in our housing system, and this
Committee has a responsibility to conduct rigorous oversight of
the agency and that includes all aspects of this agency. I want
to say up front that I have been friends with Director Watt for
years. Of course, he was a Member of this Committee and a
colleague.
In addition to that, I have dined at his home with him and
his wife and mother, and of course, I have visited with his son
in California and presented his grandchildren with gifts. We
are indeed friends and colleagues.
If this were a jury in a court of law I would need to
recuse myself, but this is not a jury or a trial. This is a
Congressional oversight matter and no matter our friendship, no
matter I have visited his home, that I have dined with him,
that I know his grandchildren and have presented them with
gifts, I have a responsibility to ensure that Simone Grimes,
who has raised deeply troubling allegations against Director
Watt, is heard before this Committee
Today, Ms. Grimes will testify. While there are several
ongoing investigations into this matter, in addition to Ms.
Grimes' litigation against FHFA, I do not believe, given the
seriousness of this issue, that the existence of these
investigations and pending lawsuit should prevent Ms. Grimes
from testifying today.
As I have stated, we must face the reality that women
throughout all sectors feel that existing policies and
procedures have worked against them and left them silenced when
they have complaints about discrimination and harassment.
Sexual harassment, discrimination are wrong and against the
law. I and others on this Committee, including some of the
women who have been anxious to deal with this whole issue of
sexual harassment, have responded.
We have said yes, Ms. Grimes should be able to testify here
today. And when she requested that, we did respond.
We have been witnessing a confirmation process in the
Senate, in which several women have come forth with grave
accusations against Judge Kavanaugh, who has been nominated for
a seat on the Supreme Court.
That hearing is in process and that hearing is a travesty.
And questions remain about whether all of the women who have
made allegations will be allowed to testify before the Senate
Judiciary Committee.
I believe that we must listen to the claims of women who
come forth with allegations of harassment, abuse, or
misconduct. With this Committee, my staff, and Chairman
Hensarling's staff have worked together earlier this week to
interview Ms. Grimes so that she may testify today regarding
her allegations.
Director Watt will also have the opportunity to address
these questions, with regard to the ongoing investigations and
to Ms. Grimes' allegations. I would encourage both Director
Watt and Ms. Grimes to cooperate fully. And with that, I will
give back the balance of my time so that we can get on with
this very, very important hearing.
Chairman Hensarling. The gentlelady yields back. The Chair
now recognizes the gentlelady from Missouri, Mrs. Wagner, the
Chairman of our Oversight and Investigations Subcommittee for
minute and a half.
Mrs. Wagner. Thank you Chairman Hensarling. And I would
like to associate myself, in its entirety with your opening
statements, sir. My opening statement encompasses all three
panels and our entire work that we have been doing on the
Oversight and Investigations Committee.
Following the 2007 housing crisis, Congress passed a series
of laws in an attempt to protect our financial markets from
unnecessary exposures and liabilities. Unfortunately, 10 years
later, Fannie Mae and Freddie Mac retain their stranglehold on
the U.S. housing finance market with no end in sight.
In fact, a recent CBO report confirms that, by 2028 those
liabilities will almost quadruple. Earlier this year, the
Oversight and Investigations Subcommittee, which I have the
privilege of chairing, began an investigation into that
complicated relationship that exists between the Federal
Housing Finance Agency, FHFA, and government-sponsored
enterprises, Fannie and Freddie.
At our April hearing, the subcommittee heard testimony from
FHFA's Office of Inspector General, who highlighted concerns on
extravagant buildings, a lack of oversight on the GSE cyber
security programs, and whether or not FHFA had established
themselves as an effective regulator.
Unfortunately, today you will hear more of the same.
Specifically, you will hear how Fannie Mae's decision to
consolidate and relocate its Northern Virginia workforce will
cost taxpayers, are you ready for this, $727 million.
You will also hear how FHFA spent $7.7 million to produce
additional qualified commissioned examiners. Yet, after nearly
7 years, FHFA, in fact, has one less qualified commissioned
examiner than they had back in 2011 when the program started.
Mr. Chairman, I look forward to shining a light on this
waste, fraud, and abuse and other very serious and troubling
allegations that we are going to hear about today. I look
forward to hearing from Ms. Grimes and from all of our
witnesses. And I yield back the balance of my time.
Chairman Hensarling. Time of the gentlelady has expired.
Our first witness today, again, is Ms. Simone Grimes, who is a
Special Advisor at the Federal Housing Finance Agency in the
Division of Conservatorship and the Head of the FHFA Program
Management Office.
She attended George Washington University and received an
MBA from Cornell. Ms. Grimes previously worked at
PricewaterhouseCoopers and Grant Thorton.
Ms. Grimes, you will be recognized for 5 minutes to give an
oral presentation of your testimony and without objection; your
written statement will be made part of the record. Since, Ms.
Grimes, you have not testified before us before, please, when
you testify, pull the microphone close to you so all can hear
and ensure that you press the button as well. You are now
recognized for your testimony, and welcome.
STATEMENT OF SIMONE GRIMES
Ms. Grimes. Thank you. Thank you Chairman Hensarling,
Ranking Member Waters, and Members of the House Financial
Services Committee. I want to especially thank you for your
opening comments today which were poignant, and which I agree
with wholeheartedly.
Thank you for the opportunity to testify today regarding my
complaints of sexual harassment, retaliation, and violations of
the equal pay act that I experienced at the Federal Housing
Finance Agency.
I appreciate the Committee taking these matters seriously
and working expeditiously to get through the tremendous volume
of evidence presented to you. I began my career with the agency
in September 2010, I enjoyed my early years at FHFA, was and
continue to be committed to its mission.
I quickly moved up the ranks with the highest level of
performance review for my accomplishments for 7 consecutive
years. I found the agency to be mostly populated with bright,
talented, and enthusiastic employees who are mission-driven and
dedicated. I would like to provide a little background on my
particular circumstance, and then cover three points which I
believe have consequences beyond my individual matter.
As background, in early 2015 I was asked to temporarily
take on the role of Executive Special Advisor in the Division
of Conservatorship, but I was not given the benefits
commensurate with the position as had been paid to my
predecessor.
As time passed and I continued to serve in this temporary
role, I raised the issue of equal pay within my supervisory
chain. I was advised that the decision would need to be
approved by former Congressman and FHFA Director, Melvin Watt.
Beginning in September 2015, Director Watt made multiple
unwanted advances toward me and insisted that we meet in
several unusual locations in order to discuss my professional
issues, to include my equal pay complaints. The frequency of
the advances, coupled with the advice from friends in the
security industry, led me to begin recording many of our
interactions.
I felt vulnerable and unsafe. Director Watt more than once
implied that his advances were linked to my ability to receive
promotions and pay increases. When I attempted to pursue other
career advancement opportunities outside of his direct chain,
within the agency, they were blocked through the use of the
Office of Inspector General Hotline Complaint Process, which I
believe were initiated at the direction of Director Watt.
My three points are as follows--lack of communication or
corrective action after investigation concludes. When an
employee musters the courage to formally file a complaint, they
are looking for answers and resolution. The United States
Postal Service investigation into my complaints concluded on
August 13, 2018 and the agency was given a 600 page report,
plus a 73 page summary. I was not made aware by the agency that
the report was completed, or that the investigation was over.
When I finally obtained a copy of the report 2 weeks ago, I
was alarmed to learn that the agency had been sitting on the
report for more than 30 days and had not reached out to me or
taken any action. I reached out the Human Resources Director
and my counsel reached out to the agency's outside counsel to
question what was the status of the report and any next steps.
To this day we have not received any response. The act of
not providing a timely response to an aggrieved party of a
harassment complaint serves the same effect as the harassment
itself, it is dismissive, demeaning, and serves to delegitimize
the complainant and the complaint.
Number two, the refusal of a government official to
participate in an independent investigation into their own
misconduct; as was stated, in an e-mail to the USPS
Investigator, Director Watt indicated that he does not see
himself as an employee of the agency and therefore is not
subject to its policies.
My fellow employees have shared with me the atmospheric
shift they have felt inside the agency, having a leader who
refuses to be accountable to the very policies he signs, has
had a chilling effect.
I have been further disappointed that none of the agency
officials who own these policies have issued a statement to
FHFA staff to directly address what has become a very pubic
matter, or to offer any assurance whatsoever that the agency
takes its own standards seriously. The actions of Director
Watt, and by extension the lack of actions by his senior staff,
have served to chip away at the culture of pride, ethics, and
integrity that had existed at FHFA.
My third and final point is the culture of fear that is
established when an agency and its inspector general retaliate
against victims for filing complaints. It is never easy to file
a complaint against your current employer. It is even harder to
codify in writing, your concerns about your inspector general.
To be clear, my complaints have, from the very beginning,
always included the lack of independence between the FHFA
senior officials and the FHFA Office of Inspector General. And
that the OIG's processes were used to further harass and
discriminate against me.
My interactions with Inspector General Wertheimer and her
staff surrounding my complaints have been, from the beginning,
that of hostility, intimidation, bullying, laden with gossip,
and public shaming.
In early July, after learning that the Inspector General
was doing a parallel investigation into my allegations, I
raised the very specific question to Leonard DePasquale, the
Chief Counsel for Ms. Wertheimer, regarding the ability of the
Inspector General to investigate a matter to which it was a
named party.
To my understanding, this is a direct violation of the
CIGIE (Council of Inspectors General on Integrity and
Efficiency) quality standards. The OIG denied my request for
more information, refused to acknowledge the inherent conflicts
of interest, and instead engaged in the following retaliatory
tactics.
Number one, the Inspector General made my identity as the
victim of sexual harassment a matter of public record by suing
me in court under my full name, this could have been done in a
series of other ways that did not reveal my identity.
On August 1, I was advised in writing that the agency would
delay any alternate dispute resolution or mediation settlements
related to my claim until I cooperated more fully with the OIG.
And third, would decline to put me in the executive level
promotion that I was selected for until the agency had time to
review my allegations of Director Watt, and had an opportunity
to review them and decide what to do next with regards to my
promotion.
These retaliatory and aggressive actions pursued by Ms.
Wertheimer, coupled with Director Watt's public statement that
he believed the investigation would clear him, while
simultaneously refusing to participate in said investigation,
lead me to the conclusion that the OIG's participation in this
matter was solely to provide Director Watt with a ``clean
report''.
Thank you for your time, I believe hearing these issues is
an important step forward in reestablishing the trust and faith
that all public servants need to place in the systems that are
designed to protect us and hold our leaders accountable. Thank
you.
[The prepared statement of Ms. Grimes can be found on page
96 of the appendix.]
Chairman Hensarling. Thank you, Ms. Grimes, for your
testimony. We know it is not always easy to be in this chair
and discuss these types of charges. The Chair now yields
himself 5 minutes for questions. I guess my first question, Ms.
Grimes, is for the first internal investigation that was
conducted by the Postal Service IG. When you did you learn that
Director Watt--or what were the circumstances whereby you
learned that Director Watt would not cooperate?
Ms. Grimes. During periodic updates with the investigator.
I was given an update on the status of the investigation, and
it was in the second week of July that I learned that Director
Watt had declined to participate.
I wasn't given the specific reasons why he declined, and I
didn't learn his specific reasoning until I saw the report 2
weeks ago.
Chairman Hensarling. And that reasoning was as presented to
you?
Ms. Grimes. That he, according to a provision as a
section--as a political appointee, the laws of the agency were
not intended to apply to him.
Chairman Hensarling. And the non-harassment policies that
are distributed to the FHFA employees, are those signed by
Director Watt, to the best of your knowledge?
Ms. Grimes. They are signed by Director Watt, as is an
anti-harassment statement, stating that the agency will not
tolerate actions of harassment and it will hold all employees,
regardless of rank, accountable to that policy.
Chairman Hensarling. Is it now well known within FHFA that
Director Watt asserted, for lack of a better term, a legal
privilege that imposed a standard of conduct on everyone else
at FHFA but him?
Ms. Grimes. Yes, it is well known.
Chairman Hensarling. What is your opinion of that and do
you have an opinion of how other Federal employees at FHFA feel
about that assertion?
Ms. Grimes. Yes, other employees have shared with me that
it has made the work environment one of hypocrisy. Just a few
days ago, an ethics statement was issued, and I think it was
viewed as a big joke, that the agency would issue an ethics
statement when its leader, itself, was not conducting himself
ethically.
My personal view on his recusal to participate is just to
further enforce the unbalanced power dynamics that exist here.
By his refusing to participate, he has had full advantage of
seeing a full investigative file, has had 40 days to sit with
it, and can now decide what he will and will not say.
The process was intended to be fair, and it was affirmed
that we would all be required to provide written testimonies
and disclosures that we would be held accountable under oath of
Federal Government.
Chairman Hensarling. So I can safely assume you do not
believe the first investigation is complete, since Director
Watt refused to cooperate. Is that correct?
Ms. Grimes. One could say that his refusal to participate
makes it complete, or you could say it does not.
Chairman Hensarling. The current investigation by the FHFA
IG, you have stated, in your opening statement, some concerns.
Could you go into greater detail why you seemingly have
concerns? Again, it is an ongoing investigation, but you seem
to have concerns that it will not be thorough, fair, and
complete. Why is that?
Ms. Grimes. Number one, there is an inherent conflict in my
allegations and the role of the Inspector General. My
allegations have consistently named the Office of the Inspector
General as having participated in the harassment and
discrimination, as well as having contributed to the agency's
ability to discriminate against me.
I believe that it is very hard for an inspector general to
investigate a matter to which it is a named party, and it is,
in fact, prohibited under CIGIE's quality standards. A matter
of independence is supposed to be, in fact, present, as well as
perceived as being present.
Chairman Hensarling. Ms. Grimes, in the interview you had
with committee staff, you indicated concerns about the hiring
process or Director Watt's approach to the hiring process. Can
you please elaborate upon those concerns in this area?
Ms. Grimes. Yes, absolutely. On several occasions, Director
Watt made it clear to me that while we could go through an
actual employment process that appeared to be fair, that he had
the ability and would exercise the ability to make that process
a charade and to get to the end result that he intended to get
to.
He also mentioned that, often, employees need to go through
a charade of process in order to feel as though the process was
fair, even thought it would not be.
Chairman Hensarling. My time has expired. The Chair now
recognizes the Ranking Member for 5 minutes.
Ms. Waters. Thank you very much, Mr. Chairman. In at least
1 or 2 minutes of the 5 minutes, I would like to know, Ms.
Grimes, is there something you would like to add or expand on
that you have not had the opportunity to do at this point?
Ms. Grimes. No, I am fine. Thank you.
Ms. Waters. Also, I would like to know, as you were
pursuing your ability to apply for promotion or other jobs, was
Mr. Watt, at the same time, implying, in some way, that perhaps
that was possible if you cooperated with him?
Ms. Grimes. Absolutely.
Ms. Waters. Can you describe that?
Ms. Grimes. Yes. Every--the fact pattern was that every
time I raised a concern in my supervisory chain, I would be
referred to Director Watt. I didn't reach out to Director Watt,
but then he would reach out to me and suggest we needed to
discuss my professional advancement. He suggested that we
needed to meet again, in unusual locations, to discuss my
professional advancement. He certainly offered me a number of
positions, but he always tied it to the fact that he had an
attraction to me.
In a November 11 meeting, in which I clearly established
that I would not do anything in return for these professional
advances, he said he agreed, but then continued to discuss how
attractive I was and his feelings for me. There was a clear
correlation between the two.
Ms. Waters. How did this make you feel?
Ms. Grimes. Extraordinarily uncomfortable and again,
unsafe. And I have never, in my professional career, been
diminished to just an object.
Ms. Waters. And I understand that, in addition to your
request to the IG to investigate, you also have a lawsuit?
Ms. Grimes. That is right.
Ms. Waters. Is that proceeding at this time?
Ms. Grimes. Yes, it is.
Ms. Waters. What would you like this Committee to do to
help you pursue justice with your case? We are glad that you
are here today. We are pleased that we are acting responsibly
and that we are not, in any way, duplicating what is going on
on the Senate side.
And we want you to take full advantage of being here today
to express yourself, to share with us any information that you
have that will help us to understand exactly what is taking
place. Feel free to do that.
Ms. Grimes. Thank you very much. The things that I would
like to see, as stated in my civil lawsuit, is that the agency
be compelled to consistently pay its female employees equally
to their male counterparts.
I may be the only one sitting here, but I am not the only
one who has experienced this disparity in pay. Number two, I
don't believe that an inspector general who is not independent
should be permitted to investigate themselves. Number three, I
think that people who enter this situation would like quick
resolution.
The act of agencies creating protracted processes for
victims to receive resolution is costly, it is punitive, it is
designed to wear down the victim and to bleed them out
financially. I believe that this Committee should reinforce
that matters like this should receive quick and efficient
resolution.
Ms. Waters. Thank you very much. I appreciate your ability
to come and not be intimidated by this process and to speak
freely and to share with us what you have experienced. And
again, even though I only have about 1 minute left, if there's
anything that you would like to share with us, please feel free
to do so.
Ms. Grimes. Since I am not infringing on your time,
obviously I am a huge fan of yours as of the Committee and I
just truly appreciate you taking the opportunity to hear me
today. I found this to be a very warm and receptive process and
I appreciate that.
Coming forward with these matters is very difficult and
challenging. I did not appreciate being named publicly, but now
that I have been, I have heard from so many other women that
are in similar situations that have encouraged me to go forward
and speak about these matters.
So I appreciate the opportunity to do so.
Ms. Waters. Thank you very much and I yield back the
balance of my time.
Chairman Hensarling. The gentlelady yields back. The Chair
now recognizes the gentlelady from Missouri, Mrs. Wagner, Chair
of our Oversight and Investigations Subcommittee.
Mrs. Wagner. Thank you, Mr. Chairman. Ms. Grimes, thank you
for your testimony and your willingness to come before this
Committee. I admire your courage and your fortitude. I wanted
to start this morning by talking about workplace culture.
Briefly, because of our limited time, can you help the
Committee understand the workplace environment at FHFA?
Ms. Grimes. So I would say that prior to 2015, I found the
workplace environment to be dynamic, full of bright people who
are very mission driven and who are excited and dedicated to
make the right decision for homeowners, taxpayers, and the
housing system. I found it to be a culture that is very
professional. This only changed after 2014, in my experience. I
believe that the notion that some people were exempt from the
rules of the road has been percolating for several years and
that this is obviously a more blatant explanation of that
belief, but it has been unfortunate.
Morale at the agency--it is hard to work somewhere where
you are in fear. And from what I have heard from several others
who have come forward with other similar complaints, using fear
as a tactic has been prevalent for some time.
Mrs. Wagner. And has worked through the entire environment
of the FHFA.
Ms. Grimes. That is right.
Mrs. Wagner. In your opinion, has this culture impacted
your perception about upward mobility at FHFA?
Ms. Grimes. Absolutely. 100 percent.
Mrs. Wagner. Not just for you, but for others.
Ms. Grimes. Not just for me, for many bright and talented
women and others who were not given the opportunity. I fear
that the agency is setting itself up for a brain drain, where
talented people leave because they have nowhere to move up.
Additionally, I can't overstate how challenging it is to be in
an environment where none of the rules of ethics or conduct are
upheld.
Mrs. Wagner. And I am going to get to that. Has Director
Watt personally affected his workplace culture?
Ms. Grimes. My opinion is yes.
Mrs. Wagner. Based on your understanding, what is the
harassment policy at FHFA?
Ms. Grimes. The anti-harassment policy is pretty explicit
and it states that the agency does not tolerate any type of
harassment and that all levels of agency officials are held
accountable to that standard.
Mrs. Wagner. And all agency officials and employees are
briefed on these policies, is that correct?
Ms. Grimes. That is correct.
Mrs. Wagner. And signed by the Director.
Ms. Grimes. Right.
Mrs. Wagner. As an employee, how did it make you feel that
Director Watt declined to participate in the internal
investigation based on EEOC allegations that you have put
forward?
Ms. Grimes. I personally found it appalling and I think it
was a disappointment to Americans everywhere to hear that there
are leaders that believe that they are above the laws that have
been put in place to protect their employees.
Mrs. Wagner. How did that affect the environment overall of
other employees and public servants at FHFA?
Ms. Grimes. The response and feedback that I have heard is
that it has had a chilling effect and has served to chip away
at the morale of the employees at FHFA.
Mrs. Wagner. And as our Ranking Member has also generously
done with some of her time, I also have, in my limited time
remaining, I will offer you an opportunity. If there is
anything else, Ms. Grimes, that you would like to offer based
on my line of questioning or anything else to offer for this
Committee.
Ms. Grimes. Well thank you very much. Again, I do believe
it is important to have this type of hearing today. We will
soon have a new Director and a new set of appointees and I
believe it is important that we set a precedent for what is and
is not acceptable. I also agree with the Chairman's initial
comments. I too have a teenage daughter and a teenage son and I
would want them both to feel comfortable that their rights are
protected, whether they are the accused or the accuser.
Mrs. Wagner. We all feel that way, Ms. Grimes. And again,
let me say again, I appreciate your coming forward, I
appreciate you meeting with my staff and that of the minority.
I think we have worked well together in this process, and I
appreciate your courage and your fortitude. I yield back, Mr.
Chairman.
Ms. Grimes. Thank you.
Chairman Hensarling. The gentlelady yields back. The Chair
now recognizes the gentlelady from New York, Ms. Velazquez.
Ms. Velazquez. Thank you, Mr. Chairman. Ms. Grimes, thank
you for coming forward this morning and sharing your story. I
admire your courage and bravery for stepping forward. My
question to you, if it is not that difficult and you wouldn't
mind sharing, how did each of Director Watt's unwanted sexual
advances make you feel?
Ms. Grimes. So I would say that they grew more and more
uncomfortable. I was hopeful with each encounter, as I was
explicit in having no interest in that type of conversation,
that in the next encounter we would move on. However, that was
not the case. I did feel trapped and as if my back was against
the wall because I was being ushered to him as the decision
maker, no matter what other channels I chose to pursue.
Ms. Velazquez. How do you feel right now in this moment?
Ms. Grimes. I think it is unfortunate. It is an unfortunate
misuse of a process that is designed to bring some type of
resolution and justice to all parties in this matter, but it
has been misused to exempt certain individuals from allowing
the Committee and the agency to reach a firm conclusion.
Ms. Velazquez. Thank you. Do have any message for the other
women out there who have gone through similar experiences and
are viewing your testimony here this morning. Is there anything
you would like to say to them?
Ms. Grimes. Thank you very much. I would like to say, it is
difficult to come forward. I will not understate the challenges
and the obstacles that you face, from the time you come forward
until you have reached resolution.
But I lean toward the statement of Martin Luther King. That
the arc of the moral universe is long, but it bends toward
justice. And that if we all continue to take a stand that
eventually things will, and have already begun to get better.
Ms. Velazquez. Thank you. And last, again, if you would
like to share, how has Director Watt's unwanted sexual
advances, and this experience, changed your relationships with
your coworkers? How has this made you feel at work?
Ms. Grimes. Yes. Actually, going into the work office
started to become a very traumatic experience. There were at
least 2 weekly meetings that I would have with Director Watt.
And I knew that in those two meetings, either before or after,
he would take advantage of an opportunity to make an
inappropriate comment to me. It made me feel very
uncomfortable.
And my attendance at those meetings began to drop. I think
it is very hard to lead a team, and try to instill in them
morale, and energy, and enthusiasm when you, yourself, are
feeling defeated.
I think the act of harassing someone makes them feel
demeaned, disempowered, and of very little value. It has been a
constant contradiction to show my staff a positive and
encouraging view of the agency when I, myself, did not have
that same perception.
Ms. Velazquez. Thank you very much. I yield back.
Chairman Hensarling. The gentlelady yields back. The Chair
now recognizes the gentleman from Michigan, Mr. Huizenga,
Chairman of our Capital Markets Subcommittee.
Mr. Huizenga. Ms. Grimes, I appreciate you being here, and
having your story be told. And, certainly, it took a lot of
forethought and planning to go through and gather information,
and do the recordings. And this must have been an extended
period of time that you were going through this.
And I think on behalf of all of us, one, we are proud of
you coming here and being a part of this even though it, maybe,
didn't start out voluntarily. Having your name exposed that
way. But the seriousness that, hopefully you are seeing us
approach this with, is sincere. And it is one that we are
hoping to change culture over. I want to try to touch on, very
quickly, maybe some specifics from your experience. What we can
do to improve that process to allow employees, like you, that
have serious allegations to come forward? But as you had
pointed out, there's going to be a new Director and new
political appointees.
And I am curious, did you find other political appointees,
who were there at FHFA, were somehow protective of the
Director, or maybe covered up some of those actions, or, in any
way, hindered that inspection from the IG?
Ms. Grimes. So, in terms of the appointed senior advisors
that the Director brought in, number one, outside of this
specific instance, I have the utmost respect for them, their
professionalism, the knowledge that they bring to the agency,
and have continued to offer to homeowners, taxpayers, and the
market systems. I would like to start with that.
I believe that whenever I tried to approach any of them
with an issue or concern, they always deferred back to Director
Watt with the assumption that he had my best interest at heart.
It became very hard.
Mr. Huizenga. I was just going to ask, were you specific
about what was going on with them, and then they still said,
hey, we can't help you. You need to go talk to the Director? Or
how did that--
Ms. Grimes. So, two separate issues. I first began
complaining of prohibited personnel practices that had led to
my equal pay violation in 2015. From 2015 to 2018, no action
was ever taken to investigate that, or bring it forward. That
was my first indication that, despite reporting openly, what
had happened, which is a violation of Federal law, the agency
was reluctant to take action against its senior leaders.
When I began to disclose more fully what had happened, what
I received was just silence. As I spoke to what I had believed
to be colleagues, people who I had a tremendous respect for,
and had expressed a respect for me, I was just met with
silence.
Mr. Huizenga. That must not feel very good.
Ms. Grimes. It does not.
Mr. Huizenga. Because these are serious allegations. So it
certainly at least implies that there were others who knew and
who remained silent, and for whatever their reasons may be,
whether it would be to protect the Director, or protect
themselves, but certainly not helping you.
Ms. Grimes. That is correct.
Mr. Huizenga. How can we, as an oversight committee,
specifically, reform the Inspector General process, internally,
to make sure that employees, like yourself, have a better path,
moving forward, to bring these types of accusations to the
authorities when they have a complaint like this?
Ms. Grimes. I think that is a very good question. I do not
have all of the answers. I believe some of the recent ruling
that has begun to question the autonomy of the agency, its
Director, and its inspector general, are steps in the right
direction.
I hope that we continue to understand that these agencies
need more oversight. And that, while HERA, as intended, was
designed to create a process for these enterprises to do the
best they could for the taxpayers with little interference.
Unfortunately, when you have individuals who abuse that power,
more oversight is needed.
Mr. Huizenga. I look forward to working with you, and I
know this Committee does as well, as you are able to relay
those experiences, and how we can improve that to make sure
that doesn't happen again in the future. And, certainly, again,
I just appreciate your willingness to come and, publicly share
this, with the evidence, and the background that you have
brought.
It's certainly a compelling story of what is going on, and
the culture that has been created at FHFA. And I, for one, and
I believe all my colleagues on both sides of the aisle, want to
change that culture. I appreciate your willingness to be in
front of the Committee. I yield back.
Ms. Grimes. Thank you very much.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from New York, Mr.
Meeks.
Mr. Meeks. Thank you, Mr. Chairman. Thank you, Ms. Grimes.
Let me, first, absolutely associate myself to the opening
remarks of, both, Chairman Hensarling and Ranking Member
Waters. And full disclosure, as Ranking Member Waters has done,
I need to just say that I have been a friend and a colleague of
Director Watt for my entire being here at the U.S. Congress.
But also, I have three daughters. And I am deeply concerned
about the allegations. And I appreciate you coming here, and
having the courage to come here, and to testify, and to speak
on your scenario, and what has taken place to you.
And I do believe that Congress has an oversight role to
play when it comes to diversity and inclusion in our workforce,
encouraging diversity, and inclusion demands stamping out a
culture of sexual harassment that oftentimes limits women's and
minorities' career advancement limits. It limits their success.
It limits their well-being and we must make sure that does not
happen. It is just not the right thing to occur.
I don't know how I would feel if my daughter--well I know
how I would feel--so it is I think courageous upon you but it
is important that you are here testifying today. In listening
to your testimony and in reading the letter that your attorney
talked about, the cozy relationship between the FHAFA's
Director and the IG's perpetuated harassment, discrimination,
and retaliation against you.
In addition to this, I know I was listening to some of the
questions that others have asked and I was wondering if there
were other things that you might be able to tell us as far as
the structural or cultural issues at the agency that continue
or may foster a culture of harassment and discrimination that
we on this Committee and Congress in general, should be aware
of.
For example, do you feel like there were adequate human
resources at FHFA for potential victims of sexual harassment
and is there something that we should be looking at as Congress
to make sure that those resources were there so that this would
not happen to someone ever again?
Ms. Grimes. Thank you very much. Thank you for the question
Congressman, and I have followed your career and I am also a
fan of yours, thank you and I do appreciate that it is
challenging to enter into this hearing with friendships and I
appreciate that you have put that to the side for today's
purposes.
In terms of factors at play at the agency that make it
challenging for people to come forward, I believe that the way
that the agency has currently structured those entities that
may be designed to protect the interests of employees certainly
have taken the posture that they are there to defend the agency
and its senior staff, regardless of what they have done.
I found H.R. to be particularly unhelpful in this matter. I
found that our Office of Minority and Women Inclusion, which
reports directly to Director Watt at a lower level, made some
attempts to bring independence into this issue by engaging the
United States Postal Service.
I think that their level of ability to exercise anything
beyond that is limited since the decisionmaking ultimately goes
to the head of human resources and I have found that our Office
of General Counsel, and as regards to this matter, has been not
only hostile, but has been very threatening toward me
throughout this process.
So, in approaching a situation like this, not only are you
hurt by what has happened, but you quickly learn that all of
the agency mechanisms that you hope would have a sympathetic
ear are slightly hostile and make clear that their position is
not to support you, but to defend their client, regardless of
what their client has done.
Mr. Meeks. I thank you and I yield back the balance of my
time.
Chairman Hensarling. The gentleman yields back. The Chair
now recognizes the gentlelady from New York, Ms. Tenney.
Ms. Tenney. Thank you Mr. Chairman. I too would like to
echo the comments and the introductory remarks by the
leadership as well.
I thank you Ms. Grimes for being here. I know it is a
difficult thing to do. As an attorney, I represent a number of
people who have been in this situation and I think it is really
important and really credible that you were not the one that
brought this forward, that it was brought out through a public
lawsuit and, unfortunately, now you are dealing with the
consequences and I think doing it in a very credible and very
honest way.
I first just want ask you what is the current status of
your work right now?
Ms. Grimes. That is a very good question, thank you for
that question Ms. Congresswoman.
So currently I am still in the supervisory chain of command
of Director Watt and the COO, both of whom are named in my
allegation. We have requested on four separate occasions, for
the sake of this process until concluded, to allow me to report
to someone who is independent and outside of my chain of
harassers and through communication from the agency's outside
counsel, I have been advised four times that in no way would my
supervisory chain be changed.
Ms. Tenney. So you are still reporting to Director Watt?
Ms. Grimes. That is correct.
Ms. Tenney. And there is no one that is in any intermediary
position on a human resources team or anyone that is in the
middle.
Ms. Grimes. We have not been made aware of any protective
or corrective actions that are being put in place to ensure
that I am not retaliated against. I have already filed one
retaliation complaint and never received a response.
Ms. Tenney. And so on your four separate times, have you
been advised of anything in a handbook or in any human
resources ethics complaint about how these are to be dealt with
officially by the agency?
Ms. Grimes. The official response has been that I should
stop complaining about it and until otherwise notified that I
will maintain that supervisory chain.
Ms. Tenney. So the only official aspect of this for you has
been that you have been involved in a lawsuit and then you had
one filed against you as well.
Ms. Grimes. That is correct.
Ms. Tenney. OK. Let me just ask you about the--so now we
are--it appears that the nature of the agency seems somewhat
accountable at this point. Has Director Watt ever specifically
spoken to you about the complaint that it could affect your
career or it could affect your reputation in an attempt to
either discourage you from pursuing it or an attempt to
discourage you from trying to bring this forth?
Ms. Grimes. Yes, in a recording that I provided to the
Committee which you may or may not have had an opportunity to
listen to, Director Watt warned me of the failings of the MeToo
Movement stating that anyone could say anything and he, in
fact, could lodge a complaint against me tomorrow and it would
have to be taken credibly.
He also warned that the victims who file complaints are
usually further persecuted by the laws that are intended to
protect them. I thought and found this to be a threat and have
found that since I lodged the complaint that has in fact been
the case.
Ms. Tenney. So do you think the purpose of him making these
statements to you was in retaliation?
Ms. Grimes. It was a warning, yes.
Ms. Tenney. A warning. Do you think that his attempts to do
this retaliation also may have been in effect an admission by
Mr. Watt that the process isn't going to help you and just
saying, by the way you are going nowhere with this?
Ms. Grimes. Absolutely.
Ms. Tenney. OK, so you would say that the process is flawed
in terms of the accountability?
Ms. Grimes. It's flawed, it has been manipulated, and it
doesn't hold any water.
Ms. Tenney. And you haven't had any assistance from human
resources or anyone in that vein.
Ms. Grimes. I have had the exact opposite.
Ms. Tenney. OK. Do you think that, again, let me just put
this a different way. Do you think that Mr. Watt was trying to
take advantage of the fact that there is a void in procedure,
in policy, and a void in the accountability of the office
itself?
Ms. Grimes. I believe he made sure that I was aware that he
knew that there was a void and that the buck stops with him.
Ms. Tenney. OK. So you mentioned earlier that there was
like a charade, maybe, I don't know if sketchy is the right
word, I am not trying to take your words, in hiring procedures
at the FHFA.
Do you think those were used and you indicated this and I
just want to clarify it, that these were used to empower the
Director versus someone like you or anyone else in this
situation?
Ms. Grimes. Yes, so the term charade was actually a term
used by Director Watt to describe the employment process, and
he specifically stated that while he could go through what
appears to be a fair and open process, he would know that it
was a charade.
Ms. Tenney. So do you think sketchy is a good word to use
in this situation?
Ms. Grimes. It seems appropriate.
Ms. Tenney. Thank you. I think I am out of time. But thank
you for your courage and for coming out on this. I know it is
not easy and I know you are doing this in an involuntary basis
and we are grateful for your testimony.
Ms. Grimes. Thank you.
Ms. Tenney. Thank you.
Chairman Hensarling. Time of the gentlelady has expired.
The Chair now recognizes the gentleman from Missouri, Mr. Clay.
Mr. Clay. Thank you, Mr. Chairman, and thank Ranking Member
Waters, both of you for conducting this hearing today. And
thank you, Ms. Grimes, for your bravery and courage in coming
forward and sharing your story with this Committee.
Let me preface my remarks by saying that I have a 24-year-
old daughter who's starting her professional career and I would
dread her having to experience what you have been through.
I have one line of questioning, wanted to know when the
inappropriate advances initially began, did you have coworkers
that were witness to this inappropriate behavior?
Ms. Grimes. I think Director Watt did a very good job of
making sure that his comments and interactions with me were not
in the public domain of employees. That being said, I reported
what was happening to several employees along the way and
provided an extensive witness list to the investigator.
Mr. Clay. And I haven't read your complaint or EEOC
complaint. But is that all part of the record and you gave them
names and follow up people?
Ms. Grimes. Yes.
Mr. Clay. OK. All right. That was pretty much what I was
curious about, and at this point I have no other questions. If
you wanted to add something to it, feel free.
Ms. Grimes. So the only other comment that I would add is
that in this process where someone is coming forward to bring
an Equal Pay Act complaint, they are already underpaid and the
process to do this is extraordinarily expensive.
I think the agency knows that and protracts it as a way to
get victims to fold much more easily. I have already spent tens
of thousands of dollars on this process, and just in speaking
with other females who lodged similar complaints against the
agency, they admitted that they folded early because they
simply couldn't afford it.
And so I think this process of dragging things out and
adding new layers is designed to overburden the victim and in
fact cause them to cave. I would also like to say, it has
already been said, but I want to reiterate that the action of
publicly naming me as a victim of sexual harassment, in fact,
publicly shaming me also serves to prevent other women from
coming forward.
I did not ask to be named, and as a matter of fact, I
requested anonymity and my attorney communicated with all
Members of the media that we wanted to keep my identity
private. I think it was a shameful tactic by the Inspector
General to name me publicly and force me to speak publicly.
Now that I am here I will speak publicly, but it is costly.
Mr. Clay. And what you have just described is a toxic
culture of the FHFA and the process itself. And we as a
Committee ought to address that. So let me say thank you again
for your bravery in coming forward, sharing your story.
And Mr. Chairman, I yield back.
Chairman Hensarling. The gentleman yields back. The Chair
now recognizes the gentleman from Wisconsin, Mr. Duffy,
Chairman of our Housing and Insurance Subcommittee.
Mr. Duffy. Thank you, Mr. Chairman. Ms. Grimes, I spent 10
years as a State prosecutor and dealt with many, many sexual
crimes.
All the victims of the crimes I dealt with were women, some
of them children, and if you deal in that environment with
someone who has been a victim of those unwanted advances to the
far extent of rape, it is incredibly hard to talk about, and I
know firsthand how difficult it is and I want to thank you
again for being here and being willing to tell your story.
Though I do note that you didn't want to be public, I think
we have all heard that loud and clear. But now that you have
and you are willing to communicate with us, we are grateful.
What timeframe was this taking place?
When did it start? When did it end?
Ms. Grimes. So the equal pay violation began in January,
February 2015. The sexual harassment began in September 2015
and concluded in March when I filed my first set of complaints.
Mr. Duffy. So this began with Director Watt roughly 3 years
ago.
Ms. Grimes. That is correct.
Mr. Duffy. OK. And it is unique for us, and as a former
prosecutor I would hear allegations and sometimes you would
have someone say listen, this is what happened to me and we
want to verify and confirm with whatever evidence we can, did
it happen or not.
And to maybe go into your opening statement, this is more
than your word versus Mr. Watt's word, isn't it?
Ms. Grimes. It is in fact also his words against himself.
Mr. Duffy. And by way of a recording.
Ms. Grimes. That is correct.
Mr. Duffy. Those who have heard it would say it is pretty
damning for Mr. Watt. So in his words, we have him saying
things incredibly--if we want to--I will use a soft word of
inappropriate, I will--which maybe we would all disagree with
that characterization is beyond inappropriate.
Fair enough?
Ms. Grimes. I believe they were inappropriate.
Mr. Duffy. So in regard to your allegation, it is pretty
clear cut what he was doing, because he is on tape doing it.
Ms. Grimes. I believe so.
Mr. Duffy. OK. Has Mr. Watt recused himself from decisions
that affect you and your employment?
Ms. Grimes. Not to my knowledge.
Mr. Duffy. OK, so he actually might still be making
decisions that affect your professional career?
Ms. Grimes. I have not been advised that he is not.
Mr. Duffy. That he has been recused, OK. We have
consolidated great power at the head of the FHFA. Do you see a
problem with the way that structure works?
Ms. Grimes. Absolutely.
Mr. Duffy. Do you have any recommendations on how that
structure should be changed to us who could change it in this
Committee?
Ms. Grimes. Yes, again referring back to the Fifth Circuit
Court's decision, I think those are the right steps to begin to
question the constitutionality of the makeup as well as the
limited ability for lawmakers to question the head of, not only
the FHFA, but other similarly structured agencies.
I believe there needs to be a lot more accountability,
visibility, and another way for individuals, like myself, to
reach out beyond just our own inspector general to air concerns
that we have.
Mr. Duffy. I am going to just note that if we are doing the
daughter game, I have five. I have five sisters. I have one
mother, one wife. And this is unacceptable in America today. I
would just note that today, I have never met you before until
this interaction, and today you are here as a victim.
But I would just note that you are far from a victim. You
are a very accomplished woman. Well-educated who has risen
through the ranks. Beyond this, tell us who you are, because
you are more than what you are saying today. And I think
sometimes it is important to recognize the whole of the person.
Ms. Grimes. Thank you. I feel like you are giving me 20
seconds to brag about myself.
Mr. Duffy. Only if the Chairman gavels us down. Go ahead.
Ms. Grimes. So just other forms of context, I am absolutely
a devoted parent to two teenagers, a daughter and a son who
support me fully in this endeavor. I am an active member of my
community; I participate in my children's sports teams, as well
as my daughter's Girl Scout troop.
I am a very faith-oriented person. I am an active member in
my faith-based community. And I strive always to be a good
neighbor and a responsible person.
Mr. Duffy. Thank you for being here. Thank you, Mr.
Chairman.
Chairman Hensarling. Time of the gentleman has expired. The
Chair now recognizes the gentleman from Texas, Mr. Green, the
Ranking Member of our Oversight and Investigations
Subcommittee.
Mr. Green. Thank you, Mr. Chairman. I thank the witness for
appearing today. And while I do not have children, and I have
no siblings, like all of us, I had a mother. And I had a
father. And I saw my mother discriminated against. I saw my
father discriminated against.
So, I have grown up with this belief that invidious
discrimination has to be challenged. I also believe that we
talk a lot about no one being above the law. I do it myself
quite often. And I also believe that no one should be beneath
the law. Law has to reach down as well as up.
So, when you made your statements about being exposed by
the IG, it caused me a good deal of consternation. And I would
start by asking you what was the response from the IG after
having been told that you did not desire to be exposed? What
was the response?
Ms. Grimes. The response was to file a suit in court naming
me publicly.
Mr. Green. Literally those words were stated.
Ms. Grimes. No. My attempts to question why IG Chief
Counsel, Leonard DePasquale, about just the specifics about
what exactly they were investigating, how they were able to
investigate a matter in which they were a named party.
And how would provisions be put in place to isolate those
matters in which they were implicated. I never received a
response; instead, I received a lawsuit.
Mr. Green. And you indicated that you made a request that
you have your anonymity protected, and by and through your
lawyers. If you don't have it, I will understand. But I do
intend to ask questions about this when the IG is before us.
Ms. Grimes. Absolutely.
Mr. Green. So, if you don't have the request, I understand.
But do you happen to have that request?
Ms. Grimes. Yes. On March 27th, prior to filing the EEO
complaint, but when I had filed the complaint with the OIG,
they asked if I would wave my right to anonymity, I declined to
wave my right to anonymity.
Additionally, when the press began asking about my
involvement in this matter, and I am not sure how they knew
that, but they contacted my attorney. My attorney made several
public statements, stating that I did not wish to reveal my
identity publicly.
So, in two separate instances we did communicate a lack of
willingness to be named publicly.
Mr. Green. I saw you turn to your lawyers. If you desire to
confer, you may. That is always available to you; would you
like to confer for a moment?
Ms. Grimes. I think that sums it up.
Mr. Green. Thank you. And as a result of your anonymity
being violated, have you suffered some consequences that you
would like to call to my attention?
Ms. Grimes. I don't believe I ever intended to Google my
name and see sexual harassment over and over and over again.
That wasn't the legacy I was hoping to leave.
I think once I was put in the position of having to defend
myself publicly, it has taken a lot of energy and effort. I am
not used to dealing with the press. They have been very
courteous; I do want to say that.
But it has just added a new layer of burden that I didn't
anticipate. Additionally, just for the record, we did not file
the civil lawsuit before being named publicly. We had no
intention of going forward with a public lawsuit.
Our hope was all along to settle this through an ADR
process as advised by the Equal Employment Opportunity
Commission. Those actions were taken subsequent to being denied
any right to due process, internal to the agency and after
being named publicly.
Mr. Green. I thank you for your testimony. And I assure you
that I plan to pursue this with the IG. Thank you very much.
Ms. Grimes. Thank you.
Mr. Green. I yield back the balance of my time.
Chairman Hensarling. The gentleman yields back. The Chair
now recognizes the gentleman from North Carolina, Mr.
Pittenger.
Mr. Pittenger. Thank you, Mr. Chairman. Good morning, Ms.
Grimes.
Ms. Grimes. Good morning.
Mr. Pittenger. Thank you again for being here with us. Ms.
Grimes, I am a father of three girls, and five granddaughters.
They are special to me. And it would be a grievance thing for
me to know that they had gone through what you have gone
through.
So, I want to share with you my respect for you, for the
judicious manner that you have processed this through. You have
filed in your grievance. You provided corroborating evidence.
You did everything that you know would be the appropriate
thing to do. And at the same time, you weren't even treated
with full respect during your process. The fact that all women
should be treated with respect in private life, public life,
the workplace--in all regards. I am from Charlotte, I have
known Director Watt for some time. We are not close friends, we
knew each other before I got to Congress--he got here before I
did; shared some in this body together.
The people of Charlotte have known him as a man of high
regard, highly educated, very professional, skilled at what he
did. This is a big shock to Charlotte, they are watching this
very closely.
And I would like for you to take an opportunity, if you
would, from my perspective as a Charlottean, for what you would
like for them to know about their person, Director Watt, and
the manner in which the FHFA has been lead during this time.
Ms. Grimes. Thank you very much, Congressman. I do not have
a personal vendetta against Director Watt, I simply wanted
justice to be served. As a personal belief, I believe someone
can do good things, and do bad things as well. Many of the
policy decisions that he has made for the benefit of
homeowners, I believe have been sound.
And I believe that in carrying out his duties as it
pertains to the mission of the agency, I don't have any reason
to doubt his good intentions there. The circumstances that
occurred with me are unfortunate, and I do not have any reason
to believe that I am the first, hopefully the last person who
has experienced this with Director Watt.
Mr. Pittenger. Thank you very much, I yield back my time.
Chairman Hensarling. The gentleman yields back, the Chair
now recognizes the gentleman from Missouri, Mr. Cleaver,
Ranking Member of our Housing and Insurance Subcommittee.
Mr. Cleaver. Thank you, Ms. Grimes. Thank you, Mr. Chairman
and Ranking Member. Because I know Mr. Watt, I am, stunned is
another word, but I am wondering what was the response when you
verbalized your feelings about the advances, the sexual
advances? Did you verbalize that--in that I am interested in--
was that like, ``OK, I will back off,'' I mean, what?
Ms. Grimes. Right, so verbally Director Watt acknowledged
my rejection of his advances and would state that it would not
be an issue, however the topic came up over and over again. And
as a result of me denying to engage in any type of
relationship, none of my pay issues were remediated and I have,
to this day, been denied a promotion to which I was selected
because of the complaints that I lodged, they have been
directly tied through a letter from the agency's outside
counsel.
So while Director Watt would put me at ease by saying that
my rejection of his advances were not being taken personally or
would not get in the way, in fact they did.
Mr. Cleaver. Did any of your co-workers, or individuals in
the high levels of leadership begin to treat you differently
once you rejected?
Ms. Grimes. Once the matter became public, obviously yes.
So I have had individuals, a large number of individuals, who
have contacted me on the side, to vocalize their support but,
those people who I worked most closely with who were in the
more senior levels of the agency, I have just been met with
silence.
Mr. Cleaver. I am concerned also about FHFA and the
atmosphere there at this time. Are there some words that you
could use to allow us to know--I mean, this is obviously public
now and they know, they knew before we did so--what is the
atmosphere? Is it like, uh-oh, or is it, this might fix things,
or--
Ms. Grimes. In terms of this hearing?
Mr. Cleaver. No, in terms of the fact that your situation,
or Mr. Watt's situation has become public. I mean is there
anticipation that this may create something good? That
something good could come out of this, or are people walking
around with their heads down?
Ms. Grimes. I believe people are waiting and seeing.
Waiting, watching, and waiting to see what happens next. The
failure of the agency to publicly issue a reinforcement of its
policies, especially those around anti-harassment and equal
employment opportunity, I think was a grave misstep on their
part.
I believe that the only policy that they have reinforced
publicly with agency staff is the policy that states that staff
cannot speak to the media. So I think that they enforced the
wrong policy and have ignored the more important policy, the
elephant in the room.
Mr. Cleaver. Not--policies you cannot speak to the media
about a complaint?
Ms. Grimes. There is a policy that states that all media
inquiries have to go through the Office of Communications and
Congressional Affairs, and right after this issue was made a
matter of public record, staff were reminded during their staff
meetings that violating that policy could be a terminable
offense.
Mr. Cleaver. My final question, did you ever say to Mr.
Watt, look, I have a recording here and I--
Ms. Grimes. Yes.
Mr. Cleaver. What was the--
Ms. Grimes. I don't think he believed me.
Mr. Cleaver. Thank you. Thank you for being here.
Chairman Hensarling. The gentleman yields back. The Chair
now recognizes the gentleman from Michigan, Mr. Trott.
Mr. Trott. Thank you Chairman, thank you Ms. Grimes for
being here today and for having the courage to discuss these
matters with us. I apologize if I ask some questions you have
already answered but I had to step out, so you may have already
discussed some of this, but you said in your statement that the
Inspector General at FHFA has impeded, and in some respects
perpetuated, the problem. Can you give me a little more detail
around how that exactly has happened?
Ms. Grimes. For my specific instance, I first became aware
of some targeted allegations that had been made about me for a
job that had not yet even been posted, and for which I had not
yet interviewed.
After my interviewing for that position and being selected,
I learned that a series of questions were made of coworkers and
other staff that alluded to whether or not I was being given
preference based on my race and gender, making the insinuation
that I was potentially a diversity hire. That is very
disparaging to hear.
Once I was interviewed myself and heard the line of
questions that I was asked, my then attorney and I became very
suspicious that the allegations in part may have been planted
by Director Watt, so we filed a complaint with the OIG, asking
them to investigate their own process. On two separate
occasions, they refused to investigate their own process as it
related to my matter.
Mr. Trott. And what was basis for that refusal?
Ms. Grimes. They simply said that matters regarding
discrimination should go to the EEO.
Mr. Trott. OK. And what was the timeframe when this was
occurring?
Ms. Grimes. March. March of this year.
Mr. Trott. OK, so after the September 15--well after the
harassment.
Ms. Grimes. Absolutely.
Mr. Trott. OK. And you mentioned, you mentioned a few
times, there have been discussion of tapes. How many tapes are
there?
Ms. Grimes. I believe I provided the Committee with 15. But
I can double check.
Mr. Trott. That is plenty. And I don't want to get into
specifics, but is it fair to say if someone listened to the
tapes they would find it clearly to be harassment in your
opinion?
Ms. Grimes. That is my opinion.
Mr. Trott. OK. You mentioned a lawsuit. You were sued, you
are suing. Can you give me the status of any lawsuits?
Ms. Grimes. So the Inspector General sued me to force
compliance with their administrative subpoena, which was for
the recordings that I have subsequently given the Committee and
they are still suing me for those.
Mr. Trott. OK. And you have no lawsuit otherwise in the
civil court?
Ms. Grimes. So we filed a civil lawsuit to enforce the
Equal Pay Act violation. Again, this was only because we
couldn't get to resolution inside the agency.
Mr. Trott. Right. OK. So that is the tens of thousands of
dollars you have spent on lawyers for those lawsuits?
Ms. Grimes. Yes, the actions by the Inspector General more
than doubled my legal expenses.
Mr. Trott. Got you. What is your current job situation? How
would you describe your position and atmosphere?
Ms. Grimes. I currently have been told in writing that I
will not be given the promotion that I was selected for until
the agency has had an opportunity to review the results of the
investigation. Those results have been completed for over 40
days and we have heard nothing. I continue to remain at the
diminished position and I continue to report to my harassers.
Mr. Trott. OK. Great, well I appreciate your candor and I
have no other questions and am happy to yield back any time to
you if you want to add anything that the Committee should know.
Ms. Grimes. Thank you very much. I think I have covered--
Mr. Trott. I yield back, Chairman.
Chairman Hensarling. The gentleman yields back. The Chair
now recognizes the gentleman from Maryland, Mr. Delaney.
Mr. Delaney. Thank you, Ms. Grimes. First, I want to start
by telling you how sorry I am that you have endured what you
have endured in your service to our country and working for the
Federal Government. As a Member of the Congress of the United
States, we all should take some responsibility when we allow
conditions to exist in any agency of the Government where a
situation like yours occurred. So on behalf of the Congress, I
apologize to you.
I want to thank you for being here. You have learned today
that many of the Members of this Committee have daughters. I
have four of them myself and I obviously am grateful that you
are stepping forward today on behalf of all young girls and all
women because what you are doing here today will lead to a
world where women and girls are in an environment where they
are not discriminated against or subject to harassment. So I am
grateful for that and I think you are very brave and courageous
to do it.
People should care about this whether they have daughters
or not. And I think that is also an important point to make. We
shouldn't just care about this because we happen to have a
situation in our own family and we think about it in the
context of how terrible we would feel if it were to happen to
someone in our own family, which I obviously do. The thought of
this happening to one of my daughters is very disturbing, as my
colleagues have said about their own family situations.
But of course we should care about this whether we have
daughters or not. I did have one question for you. In your
opening statement you talked about how you would meet with your
supervisor and you would discuss this pay inequity that you
were subject to. And your supervisor would say that it was up
to Director Watt. And then you said that you would never reach
out to Director Watt about it. And it is obvious why you didn't
do that, based on what you were enduring.
But it seemed like Director Watt would then reach out to
you. So you obviously believe your supervisor was communicating
with Director Watt these discussions they would have with you,
because otherwise how would Director Watt know to reach out to
you about those discussions. Is that an accurate assessment?
Ms. Grimes. That is correct. And I would also just like to
add that my supervisor, I believe, was fully supportive of
making an adjustment but felt as though his hands were tied.
Mr. Delaney. So do you think your supervisor, who--I am
happy to hear that your supervisor was fully supportive of the
adjustment. That speaks well to your supervisor because I am
sure you are imminently qualified for this salary and pay
adjustment. Do you think your supervisor was aware of the
situation you were facing with Director Watt?
Ms. Grimes. No, he was not.
Mr. Delaney. Got it. OK. Well that was the only question I
had. Again, I am grateful that you are here. I am sorry that
you have had to endure what you have endured. I will also offer
you time, although based on what my colleague Mr. Trott said,
it doesn't seem like you have any more comments. But absent
that, then I will yield back to the Chair.
Chairman Hensarling. The gentleman yields back. The Chair
now recognizes the gentlelady from Ohio, Mrs. Beatty.
Mrs. Beatty. Thank you to the Chairman and to the Ranking
Member and to you, Ms. Grimes. Thank you for being here. I
proudly associate myself and echo the words of our leadership.
Being last gives you an opportunity to add something new, which
was not asked a lot at all. So I am going to take part of my
time to say to you how sorry I am that at this time, you have
to be here. As a female myself, before I talk about
granddaughter and grandson, being a woman of color, someone who
took great pride in growing up to be a first generation college
graduate and to work hard and pull my way up to some of the top
ranks, I sit here appalled, angry, and frustrated for what you
have had to go through. So let me just say how proud I am of
this Congress that you are in the right place for us to hear
you.
Thank you also for coming in, not just putting blame and
complaining but to have resolve. I was always taught when you
have a complaint, come with an answer. I appreciate that in
your statement. I have grandchildren, a granddaughter who I
think is gifted, talented, beautiful, and bright. I have a
grandson, who I think is sweet and naive and loves his Grammy
to death.
So my statements are for all the children out there, that
today many eyes are watching you and I want you to know that as
you quoted Martin Luther King, I too often quote him. But my
favorite quote is when he says, ``it is not where we stand in
the time of comfort and convenience, it is the actions that we
take in the times of challenges and controversy.''
So I say to you I believe in that moral arc of justice. I
think that what hopefully you will leave here and feel with
your children, when you go home, you embrace them and you tell
them that mother was not a victim today, mother stood up for
people, mother made a statement so your children could have a
brighter future.
As it relates to some of the departments, let me just say
how proud I am of my Ranking Member, Congresswoman Maxine
Waters, who had has stood with us whether we are with her or
against her. I can honestly say that I have not always voted
the same, but she has always been fair with me.
I can also say that she entrusted me to work with OMWI, so
you gave me great pleasure today, when you said you thought
they had listened and been fair. For the public, that is the
Office of Minority and Women Inclusion. So I thank you for
reaching out to those departments.
I think we put a lot of trust in the inspector general. So
my one question, and I think my colleague who is no longer
here, Mr. Delaney, might have hit on it. But for clarity, Ms.
Grimes, you stated on May 8, 2018 that Director Watt called you
and questioned you about an anonymous complaint you had
submitted to the FHFA Office of Inspector General on or about
March 19 or April the 4th. Is that correct?
Ms. Grimes. That is correct.
Mrs. Beatty. Why do you think that Director Watt called you
about this anonymous complaint? Do you think he assumed that
the complaint came from you? Maybe, at that time, you had told
him about the tapes? And do you believe that he was told by
somebody in the Inspector General's office about this?
Ms. Grimes. I do not know for sure what happened. My
assumption is the latter of your comments, that he was made
aware of my complaint, and I was very surprised that he
restated it to me, given that I had refused to waive my right
to anonymity.
Mrs. Beatty. And let me be clear. You have actually worked
for him, and I have read most of the testimony, and I have
listened to the tapes. So you actually, really work two jobs
and weren't even paid the highest salary for the highest job
you did. Is that correct?
Ms. Grimes. That is correct.
Mrs. Beatty. Let me tell you. I am so appalled, and I am a
big fighter, and every day I come to this Committee and I talk
about women in every platform and equal pay for equal work.
That, alone, is appalling to me, and then to have to couple it
with you being considered an object and degraded and put in any
hostility.
Let me just say the two most powerful words I can say to
you, thank you for being strong, thank you for continuing to
work, and thank you. I yield back my time.
Ms. Grimes. Thank you for your leadership.
Chairman Hensarling. The gentlelady yields back. We have no
other Members in the queue who have not previously asked
questions. Ms. Grimes, thank you very much for your testimony
today.
To repeat, we are not a trier of fact or a court of law,
but we are committed, as a Committee, to the proposition that
every Federal employee should be treated fairly and in a work
environment that does not tolerate hostility, harassment, or
discrimination.
Please know that we will continue to monitor this
investigation very, very closely. You have brought serious
charges. This Committee takes them seriously. And we know that
it takes courage to stand up and be heard. And we, again,
appreciate you coming forward.
I now wish to alert Members. We will take a short recess,
in order to seat the next panel. Ms. Grimes, you are now
excused. And the Committee will recess for approximately 10
minutes.
[Recess.]
Chairman Hensarling. Committee will come to order. Our
second witness today is Ms. Laura Wertheimer. She is the
Inspector General of the Federal Housing Finance Agency. Ms.
Wertheimer earned a B.A. from Yale and a J.D. from Columbia.
Previously, Ms. Wertheimer was a partner at Wilmer Cutler
Pickering Hale and Dorr LLP.
Ms. Wertheimer, you will be recognized for 5 minutes to
give an oral presentation of your testimony, and then without
objection your written statement will be made part of the
record. You are now recognized for your testimony.
STATEMENT OF THE HON. LAURA WERTHEIMER
Ms. Wertheimer. Chairman Hensarling, Ranking Member Waters,
Members of the Committee, thank you for inviting me to testify
regarding the work of the Office of Inspector General for the
Federal Housing Finance Agency.
Created by statute in 2008, FHFA has duel responsibilities
as conservator and supervisor of Fannie Mae and Freddie Mac,
and as supervisor of the Federal Home Loan Banks. These
financial institutions together comprise about $6.5 trillion in
assets.
As conservator of Fannie and Freddie, FHFA has the ultimate
authority and control to make business, policy, and risk
decisions for both of those enterprises. These business and
policy decisions influence and affect the entire mortgage
industry. In the words of Director Watt, it is extraordinary
for a regulatory agency to fulfill both the role of conservator
and supervisor at the same time, which FHFA has done for the
last 10 years.
FHFA also acts as supervisor for the Federal Home Loan
Banks and for Fannie Mae and Freddie Mac, and as supervisor,
FHFA conducts safety and soundness examinations of those
entities similar to the exams conducted by other Prudential
Federal Financial Regulators. Like inspectors general for other
Prudential Federal Financial Regulators, we assess the
effectiveness of FHFA's supervision program for its regulated
entities.
During my tenure, FHFA OIG has issued 46 reports involving
FHFA's supervision of its regulated entities, where we have
identified deficiencies in those programs or operations or
shortcomings. In FHFA's implementation of its policies and
guidance, we have reported those and we have proposed 63
recommendations to address identified weaknesses.
FHFA fully accepted 45 of those recommendations, or 71
percent. Of those 45 recommendations, we have closed 30, or 67
percent, based on materials and representations from the
agency.
Unlike inspectors general for other Prudential Federal
Financial Regulators, FHFA OIG's responsibilities include
oversight of FHFA's actions as conservator of Fannie and
Freddie. That work has looked at decisions made and actions
taken by the enterprises; because FHFA as conservator bears
responsibility for them.
During my tenure, FHFA OIG has issued 37 reports that
address FHFA's conservatorship of the enterprises.
Again, where we have identified shortcomings and weaknesses
at FHFA's conservatorship operations, we have reported them and
we have proposed 39 recommendations to address identified
shortcomings and weaknesses. FHFA fully accepted 33, or 85
percent, of those recommendations, and of those 33 we have
closed 18 of them, or 55 percent.
Another aspect of our work is to assess the effectiveness
of FHFA's internal controls for its own operations; travel and
purchase cards, technology, privacy. We have issued 20 reports
that address the sufficiency of FHFA's internal controls, and
again, where we have identified weaknesses and shortcomings, we
report them and we have proposed 28 corrective actions of which
FHFA fully accepted 27, or 96 percent, of them. Of those 27
recommendations, we have closed 17, or 63 percent.
Recommendations accepted and fully implemented by FHFA
require meaningful follow up and oversight and we conduct
validation testing of those closed implemented recommendations.
Since January 2015, we have conducted validation testing of 15
closed recommendations. We found that FHFA fully implemented 8,
or 53 percent.
The 103 reports issued during my tenure reflect the
independence of mind, objectivity, and professional skepticism
of our professionals.
Through our work, we challenge FHFA to improve its
oversight over its conserved entities; enhance its supervision;
put more rigorous internal controls into place; and look for
and eliminate fraud, waste, and abuse.
I have listened to Ms. Grimes today. I read her EEO
complaint in July, when I first became aware of it. And there
appear to be some significant misunderstandings about our work,
which I am fully prepared to answer today, as well as any other
questions you may have.
All the work I will discuss and have discussed in my
written testimony is made possible by the dedicated career
staff of this agency, the senior staff of which are seated
behind me. So I look forward to answering all of your
questions. Thank you.
[The prepared statement of Ms. Wertheimer can be found on
page 154 of the appendix.]
Chairman Hensarling. Thank you for your testimony, Ms.
Wertheimer. The Chair now yields himself 5 minutes for
questions.
I am glad that you heard Ms. Grimes' testimony. I know that
she is still in the hearing room. Hopefully I am not
mischaracterizing what I thought I heard her say. I am not sure
she questioned the competence of your office, but perhaps the
ability of your office to conduct a thorough, unbiased
investigation of her claims.
So I do wish to pursue, and I think you used the term
misunderstanding. First, has your investigation of Director
Watt on her claims, has that deviated, in any way, from any
other normal harassment or discrimination investigation
conducted by your office?
Ms. Wertheimer. Chairman Hensarling, we are not
investigating Ms. Grimes' claims. Those sound in EEO for which
the agency has jurisdiction. And they sound in the Equal Pay
Act. And Ms. Grimes, as she indicated, has filed suit in
Federal court to pursue those.
We are looking at issues that are squarely within our
mandate under the Inspector General Act, whether there has been
abuse of position by Director Watt, and whether there has been
any waste associated with the actions taken by Director Watt.
Chairman Hensarling. Can Director Watt fire you?
Ms. Wertheimer. I don't believe he can, sir. I think only
the President of the United States can fire me.
Chairman Hensarling. Can he demote you?
Ms. Wertheimer. I don't believe so, sir.
Chairman Hensarling. Can he cut your office's budget?
Ms. Wertheimer. No, nor has he ever tried.
Chairman Hensarling. Do you socialize with Director Watt?
Ms. Wertheimer. No, sir.
Chairman Hensarling. Do you consider him a personal friend?
Ms. Wertheimer. I meet him on a scheduled basis with the
Associate Inspector General. And Director Watt attends those
meetings with two members of his senior staff. And that is the
only time I meet with Director Watt.
I have never, not only, socialized with him, I haven't had
lunch with him. I don't eat in the cafeteria with him. If I see
him on the elevator we exchange pleasantries about the weather.
Chairman Hensarling. So, does this mean you believe that
any investigation you have of Director Watt, on any matter, you
believe to be unbiased, is that correct?
Ms. Wertheimer. I do. And I think the hallmark of the 103
reports issued during my tenure demonstrate our independence,
our objectivity, our professional skepticism, and our
willingness to make hard decisions and call out what we find.
Chairman Hensarling. Did your office leak information
regarding Ms. Grimes to the Director?
Ms. Wertheimer. I am not aware that it did.
Chairman Hensarling. You are aware that accusation is out
there?
Ms. Wertheimer. I am. And I am fully prepared to answer
those allegations.
Chairman. Hensarling. So, have you investigated to ensure
that there was not an internal leak?
Ms. Wertheimer. Yes. I didn't investigate my own people. I
certainly questioned those people who had dealings with the
agency. And I believe I understand the basis for Ms. Grimes'
concern which I am fully able to answer.
Chairman Hensarling. Do I understand correctly, that your
office found, previously, that Director Watt violated policies
regarding the personal use of official vehicles? Is that
correct?
Ms. Wertheimer. As well as use of his personal assistant
for--
Chairman Hensarling. And what happened to that report?
Where was that report transmitted?
Ms. Wertheimer. We wrote the report as a management alert.
I signed it. It was given to Director Watt in unredacted form.
It was given to our oversight Committees in unredacted form. It
was sent to the White House and the Office of Government Ethics
the day it was issued, in unredacted form. It was on our
website, in redacted form because of the Privacy Act, and
advice from the Office of Counsel, the most prudent force would
be to redact it on our website.
Chairman Hensarling. If, in any of your reviews or
investigations, your office concluded that Director Watt acted
improperly, with regards to Ms. Grimes, what will happen to
that report?
Ms. Wertheimer. I believe when that inquiry is finished, it
will result in the same written report that we have issued 103
times, previously. It will be given, in unredacted form, to our
oversight Committees, to the White House, to the Office of
Government Ethics. And, depending on advice from our Office of
Counsel, it will either be redacted on our website, or not. I
can't answer that yet.
Chairman Hensarling. So much more ground to cover in your
previous reports. That will have to be left to other Members of
the Committee. The time of the Chairman has expired. The Chair
now recognizes the Ranking Member.
Ms. Waters. Thank you very much, Mr. Chairman. I would like
to cut to the chase. There has been an accusation that you
appear to have some kind of relationship with Mr. Watt that is
rather outsized on your decisionmaking, or on the operation of
the OIG.
Now, I don't want to talk about whether or not you had
lunch with him, or whether or not you had some other activity
outside of the agency. I want to really understand your
relationship inside the agency. You talk often on the
telephone--
Ms. Wertheimer. Never.
Ms. Waters. As we understand it.
Ms. Wertheimer. I don't have any e-mails with Director
Watt.
Ms. Waters. I can't hear you. What did you say?
Ms. Wertheimer. I have searched my e-mails. I have no e-
mail exchanges with Director Watt save for two. One that he
sent in November 2014 thanking my predecessor for efforts on
the technology audit, and one after a holiday party where OIG
personnel participated in a choir Director Watt had assembled.
And he sent an e-mail to me, every member of the choir,
thanking them for their participation.
Ms. Waters. Describe to me the hotline. What is your
relationship to the hotline? Is this a hotline where people can
make complaints that you then take a look at and determine
whether or not that is within your power to deal with?
Ms. Wertheimer. We use a vendor for the hotline because we
want to make sure that individuals calling feel that they can
speak freely to someone who, if you will, is going to have no
role in deciding whether or not an inquiry should or should not
be investigated.
Those hotline complaints are taken in by the independent
vendor. They are then provided to the Deputy Inspector General
for the Office of Investigations and his Assistant Inspector
General. And a career professional--
Ms. Waters. Do you have access to that information once the
complaints are taken off the hotline?
Ms. Wertheimer. I suppose, theoretically, I do, but.
Ms. Waters. No, not theoretically. Just do you have access?
Do you know? Do you listen to? Does someone share the
information with you? Do you get the information in any shape,
form, or fashion?
Ms. Wertheimer. It depends on the allegation.
Ms. Waters. So, sometimes you do?
Ms. Wertheimer. Sometimes I do. That is right.
Ms. Waters. OK. Evidently, Ms. Grimes used the hotline.
Ms. Wertheimer. Yes.
Ms. Waters. And evidently, somehow, the fact that she had
used the hotline was shared with Mr. Watt, is that right?
Ms. Wertheimer. That is correct.
Ms. Waters. Did you do that?
Ms. Wertheimer. I did.
Ms. Waters. So that is how he knew that she had used a
hotline, is that right? And in a conversation with her, he
referred to the hotline which caused her to suspect that you
had shared this information. Why did you do that?
Ms. Wertheimer. Thank you. There had been an investigation
previously. Not into Ms. Grimes but there were multiple hotline
complaints alleging prohibited personnel practice in
preselecting Ms. Grimes for a position. These were not about
Ms. Grimes, she was the person allegedly preselected.
Our Deputy Inspector General put together a team of
seasoned law enforcement professionals, career professionals,
long history in the Office of Inspector General, as well as a
senior investigative counsel and the head of our human
relations function is a subject-matter expert.
They collected documents, they interviewed 12 FHFA
individuals, and their fact-finding led them to believe there
was no prohibited personnel practice, but because the Office of
Special Counsel is the office that is, if you will, the
personnel police, we had contacted them early in the process to
say we wanted to send our fact-finding to them so that they
could opine on whether or not this was prohibited personnel
practice. We did that on March 22 and we sent the file to them
in early April. Ms. Grimes was interviewed by these
investigators on March 16.
On March 19, she filed, as she said, a whistleblower
complaint that had several aspects to it. One, as she said, she
suspected that the whistleblower complaints, all of which were
anonymous, were--I think she testified to it--at Director
Watt's instigation.
And the other was that there was a serious disparity in the
promotion or hiring of executives, that there were something
like 47 white males promoted into executive positions and there
were only five African-American females.
I found that--I don't believe that those statistics were
originally in the whistleblower complaint but the complaint of
racial disparity. It is true that we asked her to approach the
EEO office because of course that is--
Ms. Waters. OK, let me stop you here. Thank you for all of
that information. Thank you for giving me all of that
information where it appears what you are doing is you are
telling me that you happened to disclose the fact that she had
contacted the hotline because of all of the other things that
were going on and the interactions you were having but you did
not mean to do that and you had not started out to do that but
that is what happened, is that what you are trying to tell me?
Ms. Wertheimer. No, Representative Waters, what I am trying
to tell you is this. We got a letter from her then counsel on
April 4 saying the EEO office, FHFA, had rejected her claim. I
was quite concerned about that because these are EEO issues,
they facially sounded quite intensely serious to me. EEO has a
pretty short timeline. I felt that appropriate for the EEO
office to deal with it. Ms. Grimes had already identified
herself and her complaint to the EEO office.
What I said to Director Watt was very simple. We have
gotten a complaint, that complaint is from Ms. Grimes who
previously made it to the EEO office which rejected it and
frankly, sir, you need to do your job and tell the EEO office--
Ms. Waters. Excuse me, let me stop you again.
Ms. Wertheimer. Please.
Ms. Waters. The information about the possibility that you
had informed Mr. Watt was prior to your conversation with Mr.
Watt talking about what was happening at EEOC. It was Mr. Watt
who revealed in a conversation to her, prior to that time,
about her complaint having been filed on the hotline. And that
is where I am trying to go. Let's not go all the way to this
conversation that you are discussing about what you have
referred to the EEOC.
The question is, did you, even prior to that, at any time
and in any way, reveal to Mr. Watt that she had used the
hotline? That is all I want to know.
Ms. Wertheimer. She used the hotline to raise an--
Ms. Waters. Did you?
Ms. Wertheimer. Yes, ma'am. And--
Ms. Waters. Thank you.
Ms. Wertheimer. As I--
Ms. Waters. Thank you.
Ms. Wertheimer. As I am entitled to do--
Ms. Waters. Thank you.
Ms. Wertheimer. Under the inspector--
Ms. Waters. Reclaiming my time. Thank you. That is it.
Chairman Hensarling. Time of the gentlelady has long since
expired. The Chair now recognizes the gentlelady from Missouri,
Mrs. Wagner, Chair of our Oversight and Investigations
Subcommittee.
Mrs. Wagner. I thank you, Chairman Hensarling. Inspector
General Wertheimer, could you pull the microphone up a little
bit and close to your--thank you. Thank you for your testimony
and your willingness to come before our Committee for the
second time this year. Previously it was before the
Subcommittee that I have the privilege of chairing, which is
Oversight and Investigations. Ms. Wertheimer, I have always
found you to be fair and honest in your assessment of FHFA and
the GSEs.
You have cooperated with our oversight staff in our
investigation and I very much appreciate that. However, our
previous witness levied some very serious accusations against
you and your office, so in an effort to be fair and transparent
with all of today's witnesses, I want to first ask you some
very basic yes or no questions and give you an opportunity to
respond.
Again, I will try and go through these because I do have
another whole line of questioning that I want to get into here.
Ms. Wertheimer, have you ever retaliated against a witness in
an investigation you have conducted?
Ms. Wertheimer. No.
Mrs. Wagner. Have you ever reported anything but the facts
in your investigations?
Ms. Wertheimer. No.
Mrs. Wagner. Have you ever altered a report that has been
critical of Director Watt because he directly asked you to?
Ms. Wertheimer. No.
Mrs. Wagner. To the best of your knowledge, has your staff
ever done so?
Ms. Wertheimer. No.
Mrs. Wagner. Thank you, Inspector General. And I am sure
you will have more time to respond to some of the claims and
allegations. Mr. Chairman, with my remaining time, I would like
to follow up on some items I mentioned in my opening remarks.
Ms. Wertheimer, what circumstances led your office to
undertake the investigation of Fannie Mae's consolidation and
relocation of its Northern Virginia office?
Ms. Wertheimer. We received a whistleblower complaint in
the spring of 2016, alleging that excessive spending by Fannie
Mae in connection with consolidation and relocation of its
offices. We understood from the newspaper that headquarters was
clearly one of those offices, and so we rendered our first
management alert, I believe, in June 2016.
Mrs. Wagner. Your office determined that there was no event
compelling Fannie Mae to move from its Northern Virginia
offices, is that correct?
Ms. Wertheimer. That is what we determined.
Mrs. Wagner. Do you believe that Fannie Mae, as four FHFA
employees asserted, could operate out of its current buildings
which they had owned, instead of spending nearly 3 quarters of
$1 billion on new remodeled offices?
Ms. Wertheimer. I have no opinion outside the record that
our career investigators developed. We have the four
individuals who are FHFA employees, who separately told us in
interviews that they could remain for the indefinite future at
no decrease to their operations and at no significant cost, but
that management of Fannie Mae had adopted a strategy which FHFA
endorsed and therefore the move went forward.
Mrs. Wagner. FHFA which is in conservatorship that
borrowed--what $3-1/2 billion?
Ms. Wertheimer. Well Fannie Mae has gotten in excess of
$119 billion from taxpayers and took money in February 2018
because of the change in the tax code that caused them to
revalue their deferred tax assets and therefore they reported a
loss, but that is all correct.
Mrs. Wagner. And then went forward with a $727 million
renovation of--and they don't even own this, they rent that. Is
that right?
Ms. Wertheimer. That is correct, and I think that number is
higher because factored into that was an estimate of $140
million for the sale and--
Mrs. Wagner. Yes, they only sold it for $90 million, didn't
they?
Ms. Wertheimer. Yes, ma'am.
Mrs. Wagner. I have so many questions, Mr. Chairman. Since
there was no compelling event or reason, what reasons were
offered by Fannie Mae to justify the move that we previously
discussed?
Ms. Wertheimer. The strategy that management had adopted to
get out of owning real estate, and to have an open workspace
plan where their workforce could--
Mrs. Wagner. An open workplace plan?
Ms. Wertheimer. Yes ma'am. In the early 2000's this became
very popular in technology companies, and it became the rage, I
think it is fair to say. What we looked at as our report makes
clear, are scientific studies that have been done to show that
in fact the proposed benefits are nil and the costs in terms of
diminution and productivity--
Mrs. Wagner. Did your investigation find that these reasons
were supported by fact and hence were a valid justification for
the move?
Ms. Wertheimer. I think we found that there was no evidence
that they had to support the justification of open workspace,
but the belief that it was positive. I think what we found was
in fact the scientific evidence to the contrary.
Mrs. Wagner. Mr. Chairman, I will yield back and I will to
ask for any other Members to yield me time going forward, I
thank you for your indulgence.
Chairman Hensarling. Time of the gentlelady has expired,
the Chair now recognizes the gentleman from Texas, Mr. Green,
Ranking Member of our Oversight and Investigations
Subcommittee.
Mr. Green. Thank you, Mr. Chairman. And I thank the Ranking
Member as well. And thank you Madam Inspector General for
appearing today. Ma'am, you are a Yale Magna. You were on the
law review at Columbia, you have your J.D. from Columbia. You
are a member of multiple bars, in fact, it would not be
inappropriate to call you a lawyer par excellence. Given your
credentials, I need not explain to you the benefits and
detriments associated with anonymity in litigation.
Ms. Grimes has made statements about her desire to maintain
her anonymity. You have indicated that you were in an area
where you could hear her commentary, is that correct? Could you
hear her statements about her desire to maintain anonymity?
Ms. Wertheimer. I was aware that she had requested
anonymity in her whistleblower complaint about racial
inequality in the executive ranks, her EEO complaint that she
sent to us, that is correct.
Mr. Green. Thank you. And she was quite explicit with her
testimony today in terms of her desire to have anonymity. You
probably didn't hear my commentary about persons being above
and beneath the law. Being beneath the law is honorous. Ms.
Grimes didn't say this but in my opinion she believes that she
was beneath justice, in the sense that her desire for anonymity
was violated.
If she made the request, and if it was received, why was
the request not honored for her to have anonymity? Again, as a
lawyer par excellence you really don't have to have me explain
to you why her anonymity was important. So why was that request
not granted?
Ms. Wertheimer. So there are two issues you have raised and
I will address both of them. The request that she asked for
anonymity involved her claim of racial disparity in the
executive ranks, which sounds in EEO, I would maintain to you
the Inspector General Act does not authorize us to look at that
claim. It is a serious claim and her then-lawyer, on April 4,
told us that the FHFA EEO office had rejected it, thrown her
out of the office.
It seemed to me that the Inspector General Act sections
four, five, and eight permit me to disclose where I feel it is
necessary. Anonymity--
Mr. Green. May I kindly intercede, please?
Ms. Wertheimer. Yes sir.
Mr. Green. Why would you believe that it was necessary to
expose her given that you and I know the benefits and
detriments associated with exposure? We are both lawyers. Why
was it necessary to expose her?
Ms. Wertheimer. This was an EEO racial disparity claim. The
Director needed to tell the EEO office to do its job and look
at this, not discard her claim and tell her to leave the
office. But that isn't the claim that is the subject of her
concern about being outed in court, OK?
We had no knowledge of any of the sexual harassment until
July, on or about the 3rd, shortly thereafter, that Ms. Grimes
had sent an e-mail three times to more than 100 FHFA managers
that attached some transcripts of recordings and a segment of
an audio recording, and a discussion of her harassment
complaint against the Director.
She had sent it on her FHFA computer from her FHFA.gov
address to her lawyer, but not only to her lawyer, to more than
100 FHFA managers. That is how I first became aware of her
sexual harassment claims. That alone, sir, would not--let me--
Mr. Green. If I may just a moment because my time is
about--Mr. Chairman, because we don't have an abundance of
Members here, may I kindly have some additional time to explore
this?
Chairman Hensarling. The gentleman may proceed.
Mr. Green. Yes, ma'am. Assuming that what you have said is
entirely correct for our purposes, whether that was done by
accident or with intent, it still does not negate her desire to
have her anonymity as it relates to litigation.
And there are reasons beyond what the eye can see initially
that would benefit her in having her anonymity.
Ms. Wertheimer. Yes, sir. And let me address that as that
is what I was going to get to until you wanted more--
Mr. Green. My apologies, I had to get the additional time.
Ms. Wertheimer. No, I completely understand. We learned
from that exchange that there were recordings and transcripts.
We made a request to her counsel who said she would be happy to
give them to us.
We made a similar request to Director Watt for all of his
relevant material and the team investigating the matter we had
opened decided that it would be best to proceed by subpoena so
that we weren't at the end of this process, someone didn't come
up with a piece of evidence and that we were then held--why
didn't you subpoena it, you didn't get all the materials.
So we issued what I would call friendly subpoenas, we told
the lawyers in advance, they accepted service and her then-
lawyer, who is now her current lawyer, said oh yes we will give
you the recordings. Come and get them but bring your own IT
person, which we were fully prepared to--
Mr. Green. You may have to abridge if you would please.
Ms. Wertheimer. Absolutely. Ms. Grimes subsequently got in
touch with us and over a series of e-mails communicated to us
that she was never going to give us the recordings.
And so the team that was handling this--
Mr. Green. May I kindly say this? It sounds like you are
getting to a point where you are being vindictive.
Ms. Wertheimer. No, sir. No, no.
Mr. Green. Well I am just letting you know so that you can
correct yourself.
Ms. Wertheimer. So I appreciate that.
Mr. Green. All right.
Ms. Wertheimer. I am trying to move quickly and I am sorry
if my tone is incorrect. Ms. Grimes had indicated in a series
of e-mails to these individuals working on this inquiry that
she was not going to give us the recordings.
The decision was made by them in consultation with our
office of counsel, as I understand it, to move to enforce the
subpoena. We wanted to file that motion under seal.
I want to be clear about that and it is demonstrable in our
e-mail to the Eastern District of Virginia U.S. Attorney's
Office. What we got back was an answer that said no,
exclamation point.
I have been told that there were then a series of
conversations between our lawyers and the U.S. Attorney's
Office for the Eastern District of Virginia in which they
advised that Eastern District of Virginia local rule five, I
believe favors filing under seal that the judge would--we would
need, because of a duty of candor to the court, to present the
e-mails that Ms. Grimes had sent to her hundred plus colleagues
and the transcripts and that we would never, ever prevail in a
motion seal and moreover, we were told--
Mr. Green. If I may intercede, Mr. Chairman, I beg just
this please, if I may just ask you this.
Chairman Hensarling. Mr. Green, I am--this does need to be
your last point. It's an important line of questioning but
votes are imminent on the floor. We do have other Members--
Mr. Green. I do apologize, Mr. Chairman, I do apologize.
But ma'am, you have introduced hearsay, what someone told you
about a meeting that took place, and you have also indicated
that there was a seal but we are talking about a seal of an
entire record and I am not talking about that.
We are talking about anonymity as it relates to her
identity. That is the question. Now I appreciate--I have to
yield back the balance of my time. But I think that an
injustice was perpetrated when she was outed.
Chairman Hensarling. The time of the gentleman has long,
long since expired. The Chair now recognizes the gentleman from
North Carolina, Mr. Pittenger.
Mr. Pittenger. Thank you, Mr. Chairman. I yield my time to
the gentlelady from Missouri.
Mrs. Wagner. I thank the gentleman for yielding. Heading
back to Northern Virginia, Inspector General, what is the
status of the sale of the property owned by Fannie in Northern
Virginia and have they signed the lease for the new building
which includes the renovations and such up to $727 million and
then some?
Ms. Wertheimer. I do not know the status of the sale. When
I had written to Director Watt to ask him to direct Fannie Mae
to suspend any sale until our report issued, Mr. Ryan, who was
the Acting Deputy Director of the vision of conservatorship
assented to that.
But our report has issue, so I am not able to answer you on
the question of have the properties been sold. With respect to
the lease, my understanding is Fannie Mae did execute that
lease months ago.
Mrs. Wagner. The lease for the new properties?
Ms. Wertheimer. Correct.
Mrs. Wagner. The new properties, the old property that they
owned they tried to sell for $140 million, only got $90 million
for it. But we don't know whether that sale has completed or
anything?
Ms. Wertheimer. I do not know.
Mrs. Wagner. Well I hope not, because I would sure like to
see the taxpayers restored here. Going back, Inspector General
Wertheimer, you appeared before my Oversight and Investigations
Committee some months ago and we talked then about your
concerns that you had highlighted about extravagant buildings
and the lack of oversight.
In fact, recent renovations in their locations in Dallas,
Texas, I believe you found that they had $24.2 million in
excessive cost, is that correct?
Ms. Wertheimer. As of the time we wrote the report, yes.
Mrs. Wagner. There are properties in downtown D.C., $32
million in additional upgrades that Director Watt approved. Is
that correct?
Ms. Wertheimer. It is correct.
Mrs. Wagner. And you had that in your report also.
Ms. Wertheimer. A separate report, but yes.
Mrs. Wagner. I see quite a pattern of taxpayer abuse here
on the elaborate and extravagant renovations of properties that
they lease and don't even own. Going back again to something
that I brought up, there was an investigation about the $7.7
million that was spent to produce additional qualified
examiners.
Yet, as I stated, after nearly 7 years, FHFA has in fact
one less qualified commissioned examiner than they had back in
2011. Did you do a report on that, ma'am?
Ms. Wertheimer. We did, we issued it I believe earlier this
month.
Mrs. Wagner. And what did your investigations find?
Ms. Wertheimer. This was what I will call a capstone
report. It followed on previous reports we had done starting in
2015. Back in 2011, we wrote a report about whether FHFA had a
sufficient complement of qualified examiners to examine the
entities they supervised, and we concluded they did not.
And one of the things we pointed out was they lacked a
commissioning program. Their counterparts, the FDIC, the OCC,
the Federal Reserve were all, they have very well established
commissioning programs, commissioned examiners, and those
Prudential Federal Financial Regulators are used to lead high-
risk exams and exams of large financial institutions which we
certainly have here.
FHFA agreed and they developed a program which they rolled
out in 2013. And so in 2015, we did our first compliance review
and found many shortcomings with that program, which FHFA
agreed to address. We did a status report in 2017 and found
they had done some of the things they had committed to do, but
not others. And so we thought it was appropriate to now look in
2018, how far things have come in 7 years and what we found we
reported. Not only do they have one less examiner, not only
have they had problems with their exam, not only of the
targeted exams of the enterprises in the last two supervisory
circles--
Mrs. Wagner. Ms. Wertheimer, I am about to run out of the
gentlemen's time.
Ms. Wertheimer. Sorry. Sorry.
Mrs. Wagner. Does Director Watt follow any of the
recommendations that you, as Inspector General, put forward in
your multitude, 103 plus reports?
Ms. Wertheimer. I think I have testified, yes he does agree
to certainly well more than 50 percent. I believe, I would have
to go back and give you the exact percentage on supervision but
the real tell here is not only what he agreed to, Madam
Chairman, but what is actually implemented and I think as I
have testified when you look at supervision, he has accepted 71
percent of our recommendations or 45--
Mrs. Wagner. But have they been implemented?
Ms. Wertheimer. Only 30 have been implemented. But
remember, when we went--I mean that is the point of compliance
testing and so your questions about the HFE program are
important because what did we find? Wholesale lack of
implementation.
Mrs. Wagner. Wholesale lack of implementation. In fact, it
went backward, one less examiner.
Ms. Wertheimer. They are redoing the program top to bottom.
Mrs. Wagner. Again. Here we go. The gentleman's time has
expired. I again thank the Chairman.
Chairman Hensarling. If the gentlelady would suspend, the
Chair was quite generous with the gavel with the previous
Member if this gentlelady would like to ask another question or
two to help balance the time, she is free to do so.
Mrs. Wagner. That is all right. I will wait for some more
additional time down the road sir. Thank you kindly.
Mr. Pittenger. My time has expired, thank you.
Chairman Hensarling. The gentleman yields back. The Chair
now recognizes the gentleman from Missouri, Mr. Cleaver, the
Ranking Member of our Housing and Insurance Subcommittee.
Mr. Cleaver. Thank you Mr. Chairman. I just have one
question and if my colleague, Mrs. Wagner, would like to have
some of my time I would be certainly willing to do that.
My one question is what can be done to make certain that if
someone comes up with a similar or, frankly, any complaint
against the top levels of FHFA, can they be assured of
anonymity and understanding that some the things that could
happen as a result of that becoming public?
Ms. Wertheimer. I certainly understand the concern you
raise. The issue that we had in this particular matter was, and
I appreciate Representative Green's concern about anonymity.
We, as I said, wanted to file under seal but we are lawyers
signing the papers and we have court rules we must follow.
Assistant U.S. attorneys who were handling this matter were
told we could not file it under seal in light of the facts
presented to them which they would disclose to the court. If
there were a different fact pattern, we would not have this
issue with anonymity. We would have--
Mr. Cleaver. If what, I am sorry?
Ms. Wertheimer. Had we had a different fact pattern here
that we didn't have 1/6 of the agency with the information, we
would have filed under seal.
Mr. Cleaver. OK. Friedrich Nietzsche the German philosopher
said, ``the muddied the waters to make them seem deep,'' and I
am not accusing you of anything, I just think we generate or we
create all kinds of rules that appear to be too muddy for us to
get the clear water back and see what is going on so we can
make corrections.
And I understand you have to comply with the court. You
made that, you swore that in. But something needs to be done. I
don't know who needs to do it. Something needs to be done so
that when people bring very sensitive matters up, they can be
protected. I don't know--look I am just a preacher. I didn't go
to law school. I went to the seminary. So our role every Sunday
is to unmuddy the water. That is all I would like to know and
like to see for some way, if this happens again, there has to
be something to protect the person who came forth. That is not
a question unless you have an answer but it is something that
really troubles me. I just went through something with my niece
within the military. It's taken us 3 or 4 years, my staff,
everybody involved. She was raped in the military.
Ms. Wertheimer. I am sorry to hear that.
Mr. Cleaver. Three or 4 years--I would have to ask my
staff. Three or 4 years later we--I can say it publicly now.
One time I couldn't get through this. But everybody in the
military knew about it before she had a chance to finish
crying.
It was something that was personal. I am glad this is not
the same, I am just saying that bothers me on a personal level
and I wish we could have some assurance that would not happen
again, that which happened to Ms. Grimes. I don't need an
answer.
Chairman Hensarling. The gentleman yields back?
Mr. Cleaver. I yield back.
Chairman Hensarling. The gentleman yields back. The Chair
now recognizes the gentleman from Wisconsin, Mr. Duffy,
Chairman of our Housing and Insurance Subcommittee.
Mr. Duffy. Thank you, Mr. Chairman, Ms. Wertheimer. Welcome
to the Committee. I want to talk about an article that was in
the Wall Street Journal Thursday, I believe it was August 15th
or 16th of this year, entitled, ``U.S. Pursues One of the
Biggest Mortgage Fraud Probes Since the Financial Crisis''.
Most people generally say that multi-family books of business
are doing great, no problems. At least that is what I think the
private sector would say. The story talks about how several
owners took out mortgages on buildings under false pretenses.
When inspectors would stop by the buildings, the owners
would make vacant units look occupied. Turn on the radio, turn
on the lights, put shoes outside the door, all kinds of
gimmicks to make units appear to be rented when they were
actually vacant. I believe you are working with the FBI on the
investigation of several bad actors in regard to these tactics.
But the story paints a pretty grim picture of apartment
owners gaming the system. And I want to be clear, I don't think
this is all, this is usually a really good space, but you do
have people gaming the system to take out larger mortgages in
order to expand their businesses even faster. I think there was
an example of one developer who has about $1.5 billion of
securities issued by the GSEs. So the question is how did this
happen? How does it happen?
Ms. Wertheimer. Representative Duffy, I am in no--that is
an open investigation. I am really not at liberty to comment on
that or any other investigations. Multi-family is a focus for
us. It has been a safe space, but we are looking hard at it.
And beyond that, I think it would be improper for me to go any
further.
Mr. Duffy. So, but if you look at maybe just--OK, fair
enough. But policies and procedures to verify the units are
occupied, is something missing in Fannie and Freddie's process.
Ms. Wertheimer. I don't think I have enough information
right now to answer that question. Stay tuned and I am sure we
will have a better answer when we have done more work on this.
Mr. Duffy. Maybe I will just talk about my own experience,
but I think when you get a mortgage--this can go to Fannie or
Freddie--I believe I have to submit my bank records. And they
want to actually verify that the money that I make they see
going into my account. And they just don't want 1 month. I
think they wanted 3 months of my bank records so they could
verify that I make what I said I made.
But is that not the case for a multifamily owner? Do we not
verify if you say listen, I got 120 units but 110 of them are
rented, but we look at their bank records, we go where in the
hell is the rent coming from because I don't see it going into
your account.
Seems like a pretty--we have crafted a pretty smart
solution for the average fellow in America, but the multi-
family seems to have a different standard. Am I wrong on that?
Ms. Wertheimer. Again, I think it is premature for me to
answer your question.
Mr. Duffy. Well that is, no, this is not an investigation,
this is policies and procedures that are used.
Ms. Wertheimer. It is not necessarily the policies being--
that the policies are poor or weak or it may well be--
Mr. Duffy. OK, so do we verify income?
Ms. Wertheimer. May be the--
Mr. Duffy. Do we verify income? Do you know?
Ms. Wertheimer. Remember, I--remember, Fannie and Freddie,
it is the--
Mr. Duffy. Multi-families?
Ms. Wertheimer. I am sorry, they are not making the
mortgages, it is the originators who are making the mortgages.
Mr. Duffy. But do we also set up policies--
Ms. Wertheimer. There are policies on--
Mr. Duffy. And do we have policy that comes from Fannie and
Freddie that require that there is income verification of
owners of multi-family units?
Ms. Wertheimer. I know there is verification but whether it
is the pay statement says when you try to own a single family
house, that I can't answer that question.
Mr. Duffy. And I wanted--I know--I thought this was going
to take less time than it is. I just, I didn't know that I got
a clear answer from you. And I knew you were trying to say a
lot of things and maybe someone else will ask you this
question. The anonymity issue I think was important. I think
you were trying to give us an explanation as to the
circumstances and you couldn't fit it into 2 minutes, and I
understand that complication takes time. I would hope that at
one point you could explain that to us, the full circumstances
without interruption.
And I know that Mr. Green was trying to move his time
along. He didn't have much, but that is something that I am
interested in because I think there's more to the story that we
weren't hearing just because we are all limited in the amount
of time that we have and I think all of us would be interested
in hearing that from you. And also I can't ask it, but the
cooperation from Mr. Watt has concerned me and I wish I could
ask about that as well, but my time is expired. I yield back to
the Chairman.
Ms. Wertheimer. As I said, I would be happy to explain that
and Representative Green, I am sorry if my tone was wrong. It
was more that I was trying to speak very quickly.
Chairman Hensarling. We will grant the witness additional
time to further address the issue. So the witness is
recognized. If you wish to speak to Mr. Duffy's point.
Ms. Wertheimer. I would wish to speak to Mr. Duffy's point
because I think they are two separate issues here, one that--
well, maybe three. There was an investigation. We had multiple
whistleblower complaints anonymously in 2017, alleging not that
Ms. Grimes did anything wrong. I think there was a complaint
that Ms. Grimes was encouraging people not to apply. Our human
relations expert said to us, doesn't matter what she says, she
is not the selecting official, she can say whatever she wants.
That was never something we looked at because there's no
problem with that. What the claims were, were that FHFA had too
many executive positions, but they created a new position
expressly for Ms. Grimes that the very senior leadership had
told two senior managers not to apply for the position. The
position announcement was a sham because it was only for Ms.
Grimes and FHFA always intended to award the position to Ms.
Grimes.
That was, if true, if we were able to find the facts and
OSC was applying the law to the facts, that would likely be a
prohibited personnel practice.
The Deputy Inspector General for investigations opened an
administrative entry into those complaints. I was aware of
those complaints, but those are run by career professionals.
All I do is periodically ask how is it coming along.
Our Chief Counsel went to speak to the Deputy Chief Counsel
of FHFA to say please do not fill the position until his
inquiry is over, because if it is a prohibited personnel
action, we have no idea if it is or it isn't, you would have to
unwind it.
So rather than have to do that, please don't fill it. We
note that Director Watt was advised of that legal hold and I
did tell Director Watt that he and senior staff would be
interviewed as part of this administrative inquiry.
Again, I believe that is appropriate under my duties under
the IG Act. That is the sum and substance of what I told him
with respect to the administrative inquiry.
Mr. Duffy. Could I just inquire further clarification, Mr.
Chairman?
Chairman Hensarling. One point.
Mr. Duffy. So just at this point, anonymity had not been
violated at that point, to what you just indicated, correct?
Ms. Wertheimer. No.
Mr. Duffy. Right, OK. So just wanted to be clear about
that.
Ms. Wertheimer. No. So as I said, this team of rare
government investigators, lawyers, their subject-matter expert
conducted 12 interviews, reviewed documents, interviewed
Director Watt, interviewed Ms. Grimes, was working in
coordination with the OSC, and we sent them a letter on May 22
saying our fact-finding was done and we were going to send the
matter over to them.
And on April 2, we in fact collected the documentary
evidence, summaries of the interviews and sent it to the OSC.
The OSC on May 3, notified us that their preliminary
determination was there was no prohibited personnel action, if
we wanted to challenge that decision, we had 13 days. We notify
them we were not going to challenge or otherwise comment on
their letter and we notified the agency promptly. So you can
say we cleared the way for Ms. Grimes to get the position she
sought.
With respect to what has been called an outing of Ms.
Grimes, she did file a complaint with us on the 19th. Our
senior investigative counsel reached out to her to ask if she
would waive anonymity as well as has she been to the EEO office
because this really sounded in EEO, and Inspectors General
don't have authority to investigate EEO complaints.
And her then-lawyer wrote us back on April 4 saying yes,
she had been to the EEO office and they told her because there
were anonymous whistleblower complaints, they wouldn't hear her
complaint. Her complaint wasn't about anonymous whistleblowers,
it was about racial disparity in hiring and promotion of
African-American women. That is plainly an EEO issue.
In consultation with my staff and given the short EEO
timelines and given the fact that no one had alerted us in this
inquiry that there was any untoward relationship or improper
conduct by Director Watt, I raised with Director Watt the fact
that his EEO office had chewed out a claimant who appeared on
her face to have a very valid claim, and he needed, if you
will, legally to mandamus them, go do your job and I believe
the IG Act permitted me to do that.
It wasn't until July that anyone in my office became aware
of any claims of sexual harassment, which had nothing to do
with our prior work.
Mr. Duffy. Mr. Chairman, you thought you were doing your
job as you exposed her name. It was required--
Ms. Wertheimer. To tell him that his EEO office had thrown
her out improper.
Mr. Duffy. Ms. Wertheimer, thanks Mr. Chairman for the
time, because I think it is important.
Chairman Hensarling. One more Member whose time has long
since expired. The Chair now recognizes the gentlelady from
Ohio, Mrs. Beatty.
Mrs. Beatty. Thank you, Mr. Chairman, and thank you for
being here. I am going to try to be very brief because I have a
lot of questions. So I am going to try to ask the short
questions, ask you to say yes or no. So now the mystery is
solved, we know you are the one that called Mel Watt. Had you
ever about Ms. Grimes?
Ms. Wertheimer. I met with him.
Mrs. Beatty. Met with him, shared with him--
Ms. Wertheimer. Shared--yes I did.
Mrs. Beatty. Had you ever done that before with anybody
else? With any other Director when something was anonymous, yes
or no? Yes or no?
Ms. Wertheimer. No.
Mrs. Beatty. OK, now you said it was an EEO claim which
wasn't in your jurisdiction. We talked about tone here. Do you
think your tone could be a message for ``handle that?'' Like,
take care of her, make this go away.
Ms. Wertheimer. Absolutely not. It was--this is serious.
Mrs. Beatty. OK, did that name mean anything to you? I am
trying to follow the years of 2017 and then this came up. So
when you heard it was Ms. Grimes, did that ring a bell on
anything like the other--
Ms. Wertheimer. I knew we had looked--
Mrs. Beatty. So you know that this was someone, and you had
never before exposed anyone to a Director. In your mind, do you
think that tone could be, this a problem person, now I am going
to out her and tell the Director because you knew the name.
Ms. Wertheimer. But she had done nothing wrong.
Mrs. Beatty. It didn't matter, it was anonymous. She went
to something to protect her safety, to be anonymous. This
wasn't even in your area of jurisdiction, something you even
thought about or cared about, according to you, because it was
EEO. It wasn't something that fell into your purview. So now
you call a major Director and you tell him, handle it. So let's
fast forward. When you did become aware of this same person
whom you knew something about, with a sexual harassment, did
you call Mel then and say, handle it?
Ms. Wertheimer. No.
Mrs. Beatty. OK, help me understand. Somebody, who you are
now wanting me to believe, that you knew her name when it was
EEO and you felt that she had been mistreated, now the same
person that you were trying to help versus handle it, quiet her
up, now she has--and you are a female--now she is going through
sexual harassment, you know she has had EEO, you know she is a
person of color. You now know that there's all this data about
disparities. You didn't pick up the phone and call Mel then?
Ms. Wertheimer. Absolutely not.
Mrs. Beatty. Why? Why?
Ms. Wertheimer. Because that complaint was clearly in our
jurisdiction.
Mrs. Beatty. Did you tell him we have a claim in our
jurisdiction? Did you pick him up and not say handle it, say, I
have a complaint in my jurisdiction.
Ms. Wertheimer. No. In fact, he wanted to meet with us to
discuss--
Mrs. Beatty. How did he know you knew?
Ms. Wertheimer. Because his chief of staff called the
Associate Inspector General, and I was told Director Watt would
like to meet to talk about how the process of the Inspector
General will investigate and we said no.
Mrs. Beatty. Did you think it seemed unfair, unreasonable,
that someone who is working two jobs at a lower pay and is
doing two jobs and a higher level job, did that seem strange to
you? Not in your jurisdiction, maybe.
But did you call Director Watt and say, why? Look into
this? I mean, you were comfortable enough to call him on an EEO
complaint that wasn't in yours, so now when you get this whole
composite of stuff, did you call anybody and say, what is going
on with this?
Ms. Wertheimer. I think we are suggesting that we knew
about everything in the EEO complaint--
Mrs. Beatty. You said you know and cited her figures. You
said 30 or 40, less than 5. You didn't know at that time if it
was true, but later the numbers seemed accurate. So at some
point you knew what she was saying.
Ms. Wertheimer. What I knew at the time--
Mrs. Beatty. Well whenever, timing doesn't matter to me.
Ms. Wertheimer. But it does matter.
Mrs. Beatty. No it doesn't to me, my time. When you found
out at any time, did you call anybody and say, do something,
this is a problem, is she really working two jobs? Is she not
getting equal pay for equal work?
Ms. Wertheimer. We knew her EEO complaint had already
raised those issues.
Mrs. Beatty. Did you talk to anybody in EEO?
Ms. Wertheimer. No.
Mrs. Beatty. But you called Mel. It's not your area.
Ms. Wertheimer. I did not call Mel.
Mrs. Beatty. You met with him. You told him, same thing.
Ms. Wertheimer. I did tell him.
Mrs. Beatty. What was his response when you told him?
Ms. Wertheimer. OK, thanks.
Mrs. Beatty. What did that mean to you?
Ms. Wertheimer. He would look into it.
Mrs. Beatty. OK. Did you follow up to see if he did?
Ms. Wertheimer. I didn't.
Mrs. Beatty. Why? It was enough and important for you to do
it. Why?
Ms. Wertheimer. Because I knew EEO investigations took a
while. I knew that, I have never had a situation where the
Director has said, I would do something--well, that is not
true.
When he said he is going to agree to a recommendation, that
we get a completion of corrective action memo, and they say
they have done it. We have, subsequently, learned sometimes
they haven't.
Mrs. Beatty. OK, so I get it, and I am almost out of time.
You are a very detailed person. You have said 103 reports--
Ms. Wertheimer. Yes.
Mrs. Beatty. Seven times. Where we are now, how do you feel
about this case in your role? Here's somebody that is working
two jobs and not being paid. And--and may I have--
Mr. Royce [presiding]. The gentlelady's time is expired.
Mrs. Beatty. People on both sides--
Mr. Royce. They weren't--
Mrs. Beatty. I am--I am the last one sitting over here. And
everybody else has had 9, 7 extra minutes and I have 2?
Mr. Royce. I am going to follow you, but you are wrapping
it up. Could you respond? And then we will--
Mrs. Beatty. Thank you. How do you feel about a female who
is a scholar? I mean, her academics, her work, her commitment
to community. How do you feel about somebody working two jobs
and not being paid, equal pay for equal work? And we are still
dealing with this and it appears that nothing has happened.
Ms. Wertheimer. I don't agree that nothing has happened,
ma'am.
Mrs. Beatty. Has she been paid? Is there equity?
Mr. Royce. I am going to ask--we are going to have a
response. We are in the middle of votes.
Mrs. Beatty. That is my last question, Mr. Chairman. Thank
you.
Mr. Royce. OK, thank you.
Ms. Wertheimer. Ms. Grimes has pursued her claims, both,
administratively and in Federal court. I am--I just--
Mrs. Beatty. I was just asking your feelings.
Ms. Wertheimer. I cannot affect giving her any money. I
have no power over FHFA, but the power of recommendation.
Mrs. Beatty. I will yield back my time because that wasn't
my question. Thank you, Mr. Chairman.
Mr. Royce. Thank you. I want to say, Inspector General, I
would like to make a point. And that was, in the decade leading
up to the financial crisis of 2008, Fannie Mae and Freddie Mac
spent nearly $200 million on lobbying activities and campaign
contributions.
And that political pull that they had, had considerable
impact here. In 2003, I introduced legislation, and again in
2005 in the form of an amendment which would have reined in
these government-sponsored enterprises, allowing them to be
regulated for systemic risk.
As you know, they were able to over-leverage with these
portfolios. That over-leverage got to the point of 100 to 1.
And their political pull on the process, here, was used to
oppose changes that would have allowed them to be regulated for
systemic risk.
The Federal Reserve Chairman, Alan Greenspan, backed the
amendment. That was not enough to overcome the outsized
political pressure brought by the GSEs themselves. The power
and influence they wielded had few peers. You would have to go
to Japan to see the power, then, of the government-sponsored
enterprises that created the same political pull.
It was very difficult for that to be reformed as well. I
think it is critical that we avoid this distortion in our
housing finance system in the future, that comes about because
these entities have that capability.
The GSEs are, currently, prohibited from lobbying in
political activity due to the terms of the conservatorship. Do
you believe the FHFA has properly enforced, and consistently
implemented these regulations in terms of prohibition?
Ms. Wertheimer. As my understanding is, that it is not a
regulation. It's a conservatorship directive that was put into
place in 2008 that was an absolute ban, and has been modified
over time. I think it is fair to say that it is no longer an
absolute ban.
Mr. Royce. OK. Let me make this point. There have been
numerous reports of senior executives at the GSEs meeting with
Federal policymakers to advocate for being taken out of
conservatorship, recapitalized, and released. Given the
lobbying ban is not in statute, do you agree that it would be
appropriate to make the ban on GSEs lobbying, permanent in law?
Ms. Wertheimer. So, my personal opinion or?
Mr. Royce. Yes. I will ask your personal opinion.
Ms. Wertheimer. We have done no work on that. We are in
the--that is a mistake. We are in the middle of reporting on
that. I don't have a basis, in the work we have done, to answer
that question. Although, I would say to you, if you read the
conservatorship directive, it gives the--under Fannie and
Freddie, far more latitude than you might otherwise think.
Mr. Royce. Hope. Than I might otherwise hope. With this in
mind, by the way, I plan to introduce legislation with two
objectives: The first, to explicitly prohibit Fannie and
Freddie from engaging in lobbying activities while in
conservatorship, or receivership. And second, at such time that
Fannie and Freddie are no longer in conservatorship, to require
the GSEs to promptly and publicly disclose lobbying contracts.
And I would encourage my colleagues on both sides of the
aisle to join me in this effort. And I think that, based on our
experience, not here in the U.S. alone, but also with other
government-sponsored entities in the past, that have been able
to weigh in and influence judgment, and use political pull in
order to over-leverage, which is what we have seen again and
again around this globe.
This is a very prudent step. I yield back. And, at this
point we have Mr. Budd from North Carolina.
Mr. Budd. Thank you. Again, I thank you for being here. And
I will try to be brief, and in a very different line of
questioning than we have had most of this morning. Perhaps it
will be a little bit of a relief.
I want to talk about cybersecurity, and the significant
financial data, and personally identifiable information that
the GSEs store. In 2016, FHFA failed to complete your
cybersecurity examination, correct?
And in 2017, they improved and completed four out of six.
But I am still concerned that the exams did not address some
major deficiencies that were identified. Can you tell me, and
please describe, some of the issues you have identified with
FHFA's cybersecurity controls?
Ms. Wertheimer. Controls with respect to the GSEs?
Mr. Budd. Correct, particularly in regards to personally
identifiable information.
Ms. Wertheimer. What we have seen, as you have identified,
multiple failures to perform the supervisory activities that
they had planned with respect to cybersecurity and you have
summarized the work we have done. We have an ongoing audit that
is looking at updating what has happened since the prior
reports and I don't know whether they have made improvements or
not because we haven't finished our field work on that.
Certainly the findings of our prior reports gave me
significant concerns.
Mr. Budd. So are you going to take it, from what you have
seen so far, are you going to take any action to correct the
identified problems so far and will you be sure to review their
promises to correct FHFA, the actions that they have agreed to
undertake?
Ms. Wertheimer. We just don't have the ability to do
anything in terms of take action. We can only recommend. We
have made recommendations in terms of accessing whether they
have enough people in our 2017 report for example, even though
in 2016 they said they had plenty of people, we saw in 2017
with Fannie Mae they didn't do the exams they had planned and
we said, ``Hey you really need to look carefully at this.'' And
we had a memo from the staff saying, ``No, we don't have enough
people,'' but that recommendation is still open.
Certainly when we hear from them we will take action to see
whether they have implemented what they said they would do.
Mr. Budd. So about not completing the exams, in your mind
what improvements need to be made so that all scheduled
examinations can be completed on schedule?
Ms. Wertheimer. Well there are two issues. One is the risk
assessment process, because, while I have one in place as we
have reported, it bears no relations to what the work is that
they are actually undertaking.
So we have recommended again and again that they beef that
up and that the risk assessments actually tie to their planned
supervisory activities. The second thing is, we have said,
having looked and again we looked at it in 2016, we needed to
give them some time. We will look again now, how can you
complete less than half of your planned examinations?
Either you have filled the plate too big or you don't have
the right complement of people. I am not here to tell you they
don't have enough examiners. I don't know that. What I can tell
you is they are not doing the work they planned to do and that
is a problem.
Mr. Budd. That is a problem. I appreciate your brevity and
your clarity, so thank you. I am going to yield back my time.
Mr. Royce. And we will stand in recess. We have 20 seconds
until the end of this vote and we will stand in recess until
the two votes are over. We will return after that.
[Recess.]
Chairman Hensarling. The Committee will come to order. The
Chair now recognizes the gentleman from Colorado, Mr. Tipton.
Mr. Tipton. Thank you Mr. Chairman, and Ms. Wertheimer I
appreciate your willingness to be able to appear before the
Committee again. The last time you were here in April, several
of my colleagues and I asked you about the implementation of
the Integrated Mortgage and Insurance program, or IMAGIN at
Freddie Mac and the Committee and I were encouraged, I believe
by your suggesting that you would look into the program and
then report back.
Since that time, obviously Treasury and this Committee have
learned a fair bit more about the program, and I would like you
to be able to speak, because on September 12 your office
released a white paper on the subject, offering an overview of
the program's functions. And would you maybe explain in detail
why your office chose to release a white paper instead of a
proper investigation, either an Attorney General's audit or a
report?
Ms. Wertheimer. Sure. We, as I have explained, established
an Office of Risk Analysis to identify new and emerging risks
as well as to look at existing risks and see if those risks
have been heightened.
That is a function that I thought was incredibly important
within housing finance because housing finance is an evolving
industry and rules change very quickly. When I was here the
last time, and asked about IMAGIN, after the hearing we looked
at it. It's a pilot program that has barely begun, there would
be nothing to report on.
There would be no ability for us to have findings of a
program that has barely gotten off the ground. What I thought
was useful for us to do is, for purposes of transparency,
explain the program, explain how it was authorized by FHFA
because I believe I had questions at the last hearing about how
is this possible without public notice and comment.
And then explain the program itself, because we have
identified it as a new and emerging risk, it is something we
are going to watch, and we will subsequently report when we
have some data to report on.
Mr. Tipton. OK, well when you were putting together the
white paper, did you weigh whether or not this is a new
program, a new activity, or should it be considered under HERA?
Ms. Wertheimer. I believe the white paper explains that the
agency has, what I think it calls interim final regulations in
which it says, if it is new--and I don't want to misstate this
so just give me 1 second, I have it here.
The Director has discretion under his regulation to the
extent that there it is at page eight of our report, under
their regulation new--public comment is required for new
products.
When there are new activities, not new products, they do
not require public comment that is at the discretion of the
Director. As we explained, the Office of General Counsel wrote
opinions saying the activity should not be considered a new
product. It went through the considerations. And the Director
decided on November 7, 2017 that it was not a new product,
therefore public comment was not required and they did not
object to the new activity.
Again, we are in the business of valuating against
standard, the standard is their IFR. They had an opinion from
the General Counsel, and that opinion was not unreasonable.
Mr. Tipton. Were you comfortable, not to interrupt, because
I am going to be running out of time here, the white paper did
adequately cover whether or not there was necessary
transparency--it was included in rolling out the program, was
there transparency did you feel? Did the paper cover that?
Ms. Wertheimer. I think the paper discussed the roll-out,
it did not opine as to whether or not there was transparency.
Mr. Tipton. And just to follow up here before we do run out
of time, does your office intend to be able to conduct an
investigation or have an actual full report on the IMAGIN
program?
Ms. Wertheimer. When we have some data to look at, yes.
Mr. Tipton. OK, I think as you are describing here, I
believe it is probably a challenge for many of us, there's some
real concern in terms of some of the complexity of determining
whether or not you issue a white paper is going to be required
under HERA.
And I think that we need to maybe have some real guidelines
moving forward and have those put into place to be able to
prevent some further abuse and make sure that we are making
sure those taxpayer dollars are actually not being put at risk
with necessary transparency, I believe you will probably agree
is absolutely crucial.
Ms. Wertheimer. Absolutely. Which is why we publish
absolutely all of our work product.
Mr. Tipton. Thank you, I appreciate your answers and Mr.
Chairman, I yield back.
Chairman Hensarling. Time for the gentleman has expired,
the Chair now recognizes the gentleman from Michigan, Mr.
Trott.
Mr. Trott. Thank you, Chairman and I thank you Ms.
Wertheimer for being here today. I apologize if it was covered
earlier, but I was not here. This morning, Ms. Grimes commented
that she thought your office had either ignored or undermined
her complaint with respect to Director Watt. I wonder if you
could just comment on her concerns in that regard?
Ms. Wertheimer. I heard her say that she questioned our
independence for several reasons, one because he was aware of
her whistleblower complaint and two because we outed her in a
court filing.
With respect to her whistleblower complaint, let me be
clear, perhaps I was not earlier. In what I will call the first
phase of our investigation, we were looking at the allegations
of prohibited personnel conduct by senior FHFA executives in
the alleged pre-selection of Ms. Grimes.
We, as I mentioned, had career law enforcement, career
lawyers do the inquiry. Mr. Watt was interviewed on February
12, Ms. Grimes was interviewed on March 16. Had either of those
individuals suggested, implied, reported that there was this
pattern in practice of harassment as Ms. Grimes has now
alleged, I would never, ever in a million years have mentioned
anything to Director Watt. Why is that?
Because we would have launched our own investigation into
misconduct by Director Watt. What I knew was, having read the
memorandum of interview, there was absolutely nothing in there,
in any interview, about a potential sexual harassment issue. So
when I became aware of Ms. Grimes' whistleblower complaint and
her lawyer's report on the 4th of April that she had been told
by the EEO people they couldn't look at it, I was outraged.
The statistics that were quoted; 4 women, 40 some odd, I
think 3 white men were outrageous in 2018, and I didn't tell
Director Watt to handle it. I told Director Watt this is your
job. This is what the E.O. function does. Don't tell them to
get back in touch with her. Remember I didn't out her; she had
already gone to the EEO office and made the complaint.
Her identity was well known. What I said was make them open
it and do something about it.
Mr. Trott. Thank you. She apparently has roughly 15 tapes
with conversations with Director Watt. Have you heard the
tapes?
Ms. Wertheimer. That is the subject of the second
allegation Ms. Grimes has made. We have asked for those
recordings. We have asked multiple times. Our subpoena asked
for them. She has refused. She told us in writing, no. That is
why we moved to compel. Or to enforce; I misspoke. I think
there is something that has been lost somewhat here. Let me try
to explain it.
Our Office of Counsel understood we needed to move to
compel. After all it is very difficult to have a fair
investigation when someone has recordings and you haven't heard
them and you can't get them. So she is the only one--she is a
material witness to our inquiry. She has evidence; she won't
give it to us. So we have subpoena authority which we went to
use. We wanted to file it under seal, OK?
Speaking with the U.S. Attorney who was signing the papers,
we explained the facts to the U.S. Attorney, the Office of
Counsel, the Chief Counsel and his lawyers and explained that
Ms. Grimes, in three separate e-mails on her government
computer, sent to more than 100 FHFA managers, transcripts and
a recording and then a long discussion of her complaint. And
what we were told was, you cannot, this court disfavors sealing
unlike some other courts and with this history, you don't have
a good faith basis to move to seal.
Mr. Trott. Thanks for clarifying. I want to, my time is
running out, and I want to clarify, before we recess, there was
a conversation about how exactly her name became public and I
wonder if you could add any clarity to that and your role and
any information that would be helpful and how her name became
public through this process.
Ms. Wertheimer. My limited understanding is when we moved
to enforce the subpoena, her name was in the papers because we
could not seal it and that is how it became public.
Mr. Trott. Thank you so much. I yield back Chairman.
Chairman Hensarling. The gentleman yields back. The Chair
now recognizes the gentleman from Georgia, Mr. Loudermilk.
Mr. Loudermilk. Thank you Mr. Chairman. Thank you Ma'am for
being here. I also want to thank you for your testimony that
you gave to the Oversight and Investigations Subcommittee a
while back. Both of these have been very useful especially in
our role, as yours is, oversight over various agencies which is
extremely important especially when it comes to taxpayer funded
entities and to our government.
And I want to say that I appreciate your frank perspective.
I know it is not an easy role being in oversight capacity and I
have seen in other agencies that have not held their
independences as independently as we would hope and I think you
have done that exceptionally well.
Oversight is a difficult process and quite often we just
have legitimate differences of opinion but nonetheless
oversight is very important. And with that said, I was a very
disturbed by the reaction of some at Fannie Mae the last time
that you testified here before this Committee, and I would like
to read from Exhibit 1, which is an e-mail. It's from Bart
Harvey, the head of the Nominating Governance Committee to the
Chairman of the board, another Fannie board member, Mr.
Mayopoulos. Do you have a copy of that?
Ms. Wertheimer. I believe it is in this binder. Yes I have
it. Could you just give me a minute to get it from--
Mr. Loudermilk. Absolutely.
Ms. Wertheimer. OK.
Mr. Loudermilk. It's dated April 16 I believe.
Ms. Wertheimer. Yes.
Mr. Loudermilk. If you will indulge me, I will read what is
said in this e-mail from Mr. Harvey. ``Vince, I have seen it
all now, that the OIG could report this to the House Financial
Subcommittee is astonishing in Mel's placation regime. That OIG
quotes as the FHFA agreeing with the majority of its reports on
MRAs gives rise to another potential wave of regulation by the
FHFA.
If I were a Member of the Committee and I got this report,
I would have a cow that $5 trillion plus of assets may not be
operated in a safe and sound manner as we know on the board,
financial oversight exceeds anything the private sector gets by
a multiple degree, even if a lot of it is wasted time and
energy.
The single best waste of time, money, and talent are the
dueling agencies. Someone, Mel, ought to tell the House the
load of crap that the OIG has heaped upon them but he won't.
The games being played are a waste and abuse of taxpayer's
money and stymied the real progress and we accept them; getting
out of conservatorship is the only answer to this foolishness.
Best, Bart.''
My question to you is really simply, would you like to
respond to that e-mail to us?
Ms. Wertheimer. Thank you for giving me that opportunity,
yes I would like to. I have a few things to say.
This is not a game for us. OK? It's, as my chief counsel
likes to say, is as serious as a heart attack. We take this
mission incredibly seriously. We take the more than $191
billion of taxpayer money to keep these enterprises going
seriously and we are here to protect that and protect their
interests.
I understand they like to say they have paid it all back,
but plainly they haven't read the terms of the PSPAs. They
haven't paid it back. They have paid back the investments on
that $191 billion but they haven't paid it back, number one.
Number two, I think Mr. Harvey misunderstood what I was
doing last April 12th. The article, pardon me, the report to
which he refers is a report we issued in December 2016. It went
to our oversight Committees, it was on our website, I was asked
about it at this hearing and happy to discuss it.
That is a roll-up report of 12 reports we issued previously
in which we found significant deficiencies with every element
of FHFA's supervision of the enterprises save one which we
didn't think was very important, it is an annual plan. And we
called out those deficiencies and we made recommendations to
remediate them.
And the roll-up report was to say to our stakeholders,
``Wait a minute, don't think these enterprises are being
operated safely and soundly, just because they have a
supervisor, because this program has deficiencies.''
I was questioned about the use of the term, and I know I
was admonished that I used my language loosely. I,
respectfully, I don't think I used my language loosely. Mr.
Harvey seems to take issue with MRAs. MRAs, in short, are
matters requiring attention. They are the most serious
deficiencies the FHFA can find.
Yes, some of our underlying reports were on MRAs, but not
all of them. It was on risk assessments, the quality of the
work, the report of the exam. I could go on and on. And we have
identified those reports, previously. They are all public.
But most importantly, HERA sets a standard which says,
while in conservatorship, Fannie and Freddie are to be
regulated--or subject to enhanced supervision. Now because
they, if they were not in conservatorship, they would be SIFIs,
which SIFIs are regulated by the Fed, because they are in
conservatorship.
The assumption is, and I think Director Watt testified to
this before this Committee in October 2017, they are subject to
enhanced supervision. And certainly, we haven't seen that
enhanced supervision. When Mr. Harvey talks about it is the
single biggest waste of time, money, and talent, well, read our
reports.
If you think we are talking about pins on the back of
elephants, then it is a waste of time and money and talent. I,
frankly, don't think we are, and I think our reports have laid
it out for stakeholders to see the problems. And they don't end
with that roll-up. We have issued reports subsequent to the
roll-up, which are pretty critical of the supervision program.
In fact, we discussed the HFE Program. I mean FHFA's own
standard is, you need commissioned examiners to conduct high-
risk exams, as Chairman Wagner points out, and they have won
fewer than they had in June 2014.
Mr. Loudermilk. Yes, ma'am. I see that my time has expired.
And I will yield back, but another colleague would yield some
time to--
Chairman Hensarling. The time of the gentleman has expired.
There are no other Members in the hearing room who have
requested time. Ms. Wertheimer, we thank you for your
testimony. You are excused now. We will recess for
approximately 10 minutes, so that we can seat the next panel.
Ms. Wertheimer. Thank you.
Chairman Hensarling. We stand in recess.
[Recess.]
Chairman Hensarling. The Committee will come to order. We
now welcome our third panel. On this panel, we welcome our
former colleague, the Honorable Mel Watt, Director of the
Federal Housing Finance Agency. He has testified before our
Committee before, and needs no other introduction.
Next, we have Mr. Timothy Mayopoulos, Chief Executive
Officer of Fannie Mae. Mr. Mayopoulos earned an A.B. from
Cornell University and a J.D. from New York University School
of Law. He has been with Fannie Mae since 2009, serving first
as Executive Vice President, General Counsel, and Corporate
Secretary and then as Executive Vice President and Chief
Administrative Officer.
Prior to joining Fannie Mae, Mr. Mayopolous was Executive
Vice President and General Counsel of Bank of America
Corporation. Mr. Donald Layton, Chief Executive Officer of
Freddie Mac. Mr. Layton earned his bachelor and masters degrees
in economics from MIT and his MBA from Harvard Business School.
Prior to joining Freddie Mac, he was Chairman and CEO of E-
Trade.
Each one of you will be recognized for 5 minutes to give an
oral presentation of your testimony without objection. Each of
your written statements will be made part of the record. To
ensure that all Members can hear clearly, please pull the
microphones very close to you, when you speak.
And reverse order, Mr. Layton, you are now recognized for 5
minutes for your testimony.
STATEMENT OF DONALD LAYTON
Mr. Layton. Thank you Chairman Hensarling, Ranking Member
Waters, and Members of the Committee, thank you for inviting me
here today. Let me begin by highlighting my main theme. The
mortgage system we have today is fundamentally better than the
one we had 10 years ago, plain and simple. It's more safe and
sound, more efficient and does a far better job of protecting
tax payers.
Freddie Mac is similarly better, with a substantially
improved business model. We are absolutely not the GSE of the
past. As CEO, my job is clear, to create the best company and
the best housing finance system possible under current law,
especially the mission Congress assigned to us in our charter,
which we summarize in three simple words, liquidity, stability,
affordability.
In my long career in banking, I saw a lot of good done
under the charter, especially making 30-year, fixed-rate
mortgages widely available to the broad, middle, and working
class. I also saw critical flaws that eroded public confidence
in us. As a result, I am no apologist for the historic GSEs.
I accepted the challenge of leading Freddie Mac to perform
a public service, with the understanding that the
conservatorship would not maintain the flawed status quo.
Instead, FHFA would actively reform the GSEs to build upon the
good and to remedy the flaws, as much as possible, under
current law. That is why working closely with both Acting
Director DeMarco and Director Watt, we spent much of the last
decade addressing four major weaknesses of the historic GSEs.
Those weaknesses were the large subsidized investment
portfolios, the inadequate capital regime, the bias toward
large lenders, and the massive concentration of mortgage credit
risk in just two companies.
We have made fundamental changes that address those
weaknesses. We downsized our retained portfolio by more than 70
percent. We also repurposed it to solely support our mission
rather than generate discretionary profits. We created a modern
SIFI-consistent capital framework to enhance safety and
soundness, and ensure our decisionmaking is in the true
interest of the taxpayers who support us. We leveled the
playing field for community banks and other small lenders, and
we created entirely new markets to efficiently transfer most of
the credit risk of both single family and multi-family mortgage
guarantees to private capital markets.
My written testimony highlights the creation of the credit
risk transfer markets, arguably the most important development
in the housing finance system over the past decade. Credit risk
transfer has also created a greatly improved business model for
Freddie Mac.
We now buy and distribute risk instead of simply holding
it. This puts a large and growing amount of private capital at
the heart of the mortgage finance system and ahead of
taxpayers. And this significantly reduces systemic risk.
Additionally, the mortgage industry has long been
inefficient in ways that harm borrowers, renters, lenders, and
investors. We set out to improve the efficiency and safety and
soundness of the system increasingly through technology-based
innovation.
Three examples cover it: Major reforms of the
representation and warranty requirement for lenders, an
automated alternative to some traditional appraisals to save
lenders time and borrowers money, and an innovative form of
improved mortgage insurance.
Each of these efforts improves safety and soundness, lowers
cost, supports our mission, and are clearly within our charter.
And they were approved by FHFA. As we make these improvements,
Freddie Mac continues to fulfill its mission. We buy loans from
lenders each and every day. We help stabilize the market. And
we responsibly provide access to credit.
And we have dramatically reduced taxpayer exposure to our
risk. Finally, your invitation asks for my views on housing
finance reform. I offer three suggestions. First, make certain
that any proposed reform will work as intended. As we all know,
it has to work in practice, not just theory.
Second, minimize the potential for disruption or harm
during a transition period. And finally, build on the progress
achieved during conservatorship to minimize that transition
risk, and unintended consequences.
In closing, I am proud of the work Freddie Mac has done to
serve our mission, and to fundamentally reform and improve the
housing finance system under current law. Thank you, again, for
inviting me here today.
[The prepared statement of Mr. Layton can be found on page
101 of the appendix.]
Chairman Hensarling. Thank you, sir. Mr. Mayopoulos, you
are now recognized for your testimony.
STATEMENT OF TIMOTHY MAYOPOULOS
Mr. Mayopoulos. Thank you, Chairman Hensarling, Ranking
Member Waters, and Members of the Committee for the opportunity
to testify today. Ten years ago this month Fannie Mae was
placed into conservatorship.
Before the crisis, Fannie Mae enjoyed implied government
backing, profited from a large mortgage portfolio, was weakly
regulated, and exerted substantial political influence to
preserve these advantages.
By the mid 2000's, in an effort to maintain its declining
market position in the face of competition from Wall Street,
the company lowered its underwriting standards, and made
imprudent investments in private label mortgage-backed
securities.
Then, as we all know, the bottom fell out of the housing
market. That collapse signaled the end of one chapter for
Fannie Mae, and the beginning of another. I was hired in early
2009 after the company was placed into conservatorship to help
stabilize it.
At the time, the CEO and Chairman told me that my period of
service would, likely, be 12, at most, 18 months. And that the
future of Fannie Mae would be resolved in that time. What was
supposed to be a temporary timeout has lasted more than 10
years.
My focus as CEO for these past 6 years has been: One, to
repay taxpayers for their investment in the company; two, to
stabilize the housing and mortgage markets; three, to reduce
the company's risk and improve its operations; and four, to
fulfill our traditional role of providing access to affordable
mortgage options for Americans to purchase and refinance their
homes.
I am proud that during my tenure, we have accomplished more
than most people would have thought possible a decade ago.
Since 2012, the company has been profitable every single year,
generating average profits of $11.4 billion, even if we exclude
our extraordinary $84 billion profit in 2013.
Fannie Mae's rate of serious mortgage delinquencies has
declined from a peak of 5.6 percent in 2010, to a rate of less
than 1 percent today. We have paid $167.3 billion to taxpayers
in dividends. Nearly $50 billion more than the company received
in support.
That profit is more than twice as much as taxpayers
received in aggregate from all U.S. banks that received
assistance during the crisis. We have transformed Fannie Mae's
business model. Today's Fannie Mae is out of the business of
holding a large investment portfolio of mortgages. Instead of
holding all credit risk, today we distribute a significant
portion of that risk to private investors in markets that did
not even exist 6 years ago.
Our transformation encompasses nearly every aspect of the
company. Fannie Mae today is the most productive company in the
world as measured by profits per employee. We are leading the
adoption of innovative technology to reduce credit risk while,
simultaneously, expanding access to credit.
We have developed tools for the industry to minimize the
risk and magnitude of foreclosures whenever the next downturn
comes. Our investments in multi-family initiatives allow us to
play a role in affordable housing that neither overemphasizes
nor underemphasizes home ownership.
We did all this while providing $6.5 trillion of liquidity
to the housing finance market, much of it when other private
capital sources had retreated altogether. Fannie Mae and,
indeed, the entire system is now more resilient than at any
time in recent history pre- or post-conservatorship.
None of these outcomes were preordained 10 years ago. They
are the result of choices made by our management team, and by
our conservator and regulator. They are also the product of the
support provided by taxpayers in the depths of the crisis.
And none of these outcomes would have been possible without
the many remarkable people who work at Fannie Mae. This team
not only weathered the storm, but succeeded beyond all
reasonable measure.
I am grateful to have had the opportunity to lead
extraordinary people in a truly extraordinary time. Fannie Mae
is a different company from the company I joined in 2009. It is
more profitable, less risky, more innovative, non-political,
and more humble.
Whether it is the right model for the future is up to you
and your colleagues to decide. It is not my job, and it has
never been my aspiration to preserve the Fannie Mae of old.
Instead, it has been to help to lay the foundation for a
housing finance system that will serve this country well for
decades to come.
We will continue our hard work as you chart a course
forward. Thank you. And I am happy to answer any questions you
may have.
[The prepared statement of Mr. Mayopoulos can be found on
page 119 of the appendix.]
Chairman Hensarling. Thank you for your testimony. Director
Watt, before we yield to you, as everyone in this room knows, a
serious accusation of sexual harassment has been lodged against
you. Your accuser testified earlier as I am sure you are aware.
We wanted to give her all due fairness and we want to offer
you the same opportunity. So if you need to go beyond your 5
minutes to explain your position, we want to accord you that
time.
Director Watt, I now yield to you for your testimony.
STATEMENT OF THE HON. MELVIN WATT
Mr. Watt. Chairman Hensarling, Ranking Member Waters, and
Members of the Committee, thank you for inviting me to testify
today about FHFA's role as conservator and regulator of Fannie
Mae and Freddie Mac.
Since I last testified before this Committee, Fannie Mae
and Freddie Mac have marked their 10th anniversary under the
conservatorship of the Federal Housing Finance Agency, a
conservatorship of unprecedented scope, duration, and
complexity.
FHFA has worked to appropriately manage and oversee these
enterprises both as conservator and as regulator. I am honored
to appear on this panel with the CEOs of both enterprises and
to have the opportunity to thank them publicly for the critical
roles they have played.
Both recently announced that they will be leaving their
post in the coming months. Both have provided visionary,
innovative leadership and their boards, management teams, and
employees have worked closely with FHFA to reform the
enterprise's operations, improve the U.S. housing finance
system, and return significant dividends to the U.S. taxpayers.
Because of them, these enterprises are substantially better
on every measurable criterion than they were when these CEOs
started and the taxpayers are a lot better off for it. Because
of them, the enterprises are far different today than they were
10 years ago.
I have described many of the reforms we have made and how
FHFA has managed in this protracted period of conservatorship
in my 16 page written testimony and in well over 200,000 pages
of documents FHFA and the enterprises have provided to the
Committee in response to document requests, letters, and
subpoenas over a number of months.
While responding to these requests has sometimes taken
substantial time away from other responsibilities, we have
always tried to be responsive because as a former Member of
this Committee, I have the highest regard for the Committee's
oversight responsibilities.
I am also happy to appear today to answer the Committee's
questions. While we believe FHFA has made good decisions, both
as conservator and as regulator, about how to manage the
enterprises in their present state.
It is still the case that it remains absolutely essential
for Congress to enact housing finance reform legislation. As I
said during my confirmation process in 2013, and as I have
repeated even more vigorously based on experience since then,
conservatorship is not sustainable.
The fact that conservatorship has yielded substantial
reforms and progress in the way the enterprises operate does
not diminish or lessen the importance of completing housing
finance reform.
Since I left Congress to become the Director of FHFA, I
have tried to avoid expressing my views or trying to exert
influence over what role, if any, the enterprises should play
in housing finance after conservatorship.
After repeated requests from Members of Congress, we
released a document that we considered, quote, ``responsible,
balanced, viable, and important to consider'' close quote. And
I am happy to respond to any questions about it.
However, I think it is important for me to plainly and
unequivocally reiterate my view that it is the responsibility
of Congress, not FHFA, to decide on housing finance reform, and
my hope is that Congress will do so as expeditiously as
possible.
Since this could possibly be my last appearance before this
Committee before my term ends on January 6, 2019, I would be
remised to close without saying what an honor it was to serve
as a Member of this Committee and what an honor it has been to
serve as Director.
Mr. Chairman, I was not made aware until 2 days ago that
this hearing would involve the charges Ms. Grimes has made or
that she would be a witness here to make her case in a
political forum in addition to in the courts, where she already
has claims pending.
In light of these recent revisions, I was going to ask the
Chairman for an additional period of time and I think he has
already granted me that, so I won't ask him for additional
brief period to make a separate statement about that matter.
Chairman Hensarling. No, you may proceed, Mr. Watt.
Mr. Watt. First let me quote what is not in dispute
directly from the top of page 47 of the part of the Postal
Investigator's report that was leaked to the press by somebody.
Quote, ``Ms. Grimes acknowledged that Director Watt never
groped her nor touched her.''
Ms. Grimes testified, quote, ``we have never been intimate
in any fashion, specifically we have never held hands, kissed,
or engaged in any sexual activity.'' That seems to be something
that the press has managed to avoid reporting or if it has, I
certainly haven't seen it anywhere.
Second, beyond these facts that are not in dispute, there
are two lawsuits in progress that will sort through and resolve
all factual and legal issues related to her claims. Those
issues include who said what to whom and under what
circumstances, whether someone tampered with tapes and
transcripts or what was said and if so, who did so? And whether
anyone at FHFA denied Ms. Grimes equal pay or otherwise
discriminated against her in her employment.
When these issues are resolved through the legal process, I
am confident that the resolution will confirm, as I have
previously stated, that I did not take any actions or engage in
any conduct involving Ms. Grimes that was contrary to law.
I am disappointed that it appears that Ms. Grimes is now
attempting to use my efforts to advise and mentor her, and my
efforts to be clear about the limits of our friendship,
specifically that it would have no impact either positive or
negative on her employment aspirations as the basis of a legal
claim.
Those who know me well, know that I have a long history of
having successfully mentored numerous employees, both male and
female, over 22 years in the practice of law and 21 years in
Congress. And I have continued that practice during my time as
Director of FHFA.
I am proud to say that some of the people I have mentored,
are also among my very best friends. I am also perhaps even
more disappointed that someone that I considered a friend and
mentee, would for years be systematically trying to lay the
groundwork to file a lawsuit by recording what Ms. Grimes'
verified affidavit says are, all conversations with me, and
then selectively leaking parts of them to the press while at
the same time, refusing to produce all of them to investigators
or in court.
Obviously no fair and impartial resolution of this matter
can be made without all of these recordings being produced and
evaluated.
Finally, I know this matter puts Members of this Committee,
both those who consider themselves personal or political
friends, and those who may consider themselves political
adversaries, in an awkward position. For that reason, and
because experience has shown me that over the years the
judicial process is the only process that has the capacity to
resolve contested factual and legal matters of this kind. I was
hoping that this Committee would understand that it cannot deal
with this matter fairly, or with due process either to Ms.
Grimes or to me.
Due process cannot be dispensed in 5-minute exchanges of
questions and answers, or by politicians who either rightly or
wrongly will be perceived to prioritize being Democrats or
Republicans over getting the facts. Or by friends or former
colleagues, some of whom have known me and my family for years,
and know that I will be celebrating 51 years of marriage this
November to the most beautiful woman in the world.
Unlike what is going on in the Senate, this Committee's
process cannot resolve this matter, and Ms. Grimes has already
started the legal process to resolve the claims. But here we
are, and I offer this statement for the record, and will try to
answer questions without compromising the ability of the courts
to get to the real facts and a real resolution of this matter.
[The prepared statement of Mr. Watt can be found on page
138 of the appendix.]
Chairman Hensarling. The Chair yields to himself. Director
Watt, this is awkward for all of us. You and I have served on
this Committee together, albeit on opposite sides of the aisle.
But you have always commanded respect. And so I don't savor
this moment, I hope you believe that.
But it is this Committee's responsibility to conduct
oversight over FHFA and that includes your conduct as well. And
again, we started today out, not just with an accusation, but
an accusation that included evidence. Now I agree with you,
this is not a court of law and I doubt we will get to the
bottom of it, and we are not the ultimate trier of fact and we
are not the ultimate dispenser of justice.
But I do have a number of concerns, and frankly I wanted to
talk to you about other aspects of your stewardship at FHFA.
But I cannot deal with the matter that is in front of us. And
if you could please put up the exhibit?
Here's the first concern I have, Director Watt. The
language, quote, ``each of us is responsible for treating one
another with professionalism and respect, and we must all
cooperate to maintain a workplace free from harassment.'' Can I
safely assume that you have seen that language before?
Mr. Watt. Yes, sir.
Chairman Hensarling. You have seen it before, because it is
contained in the FHFA anti-harassment policy statement that you
signed on August 16 of last year, is that correct Mr. Watt?
Mr. Watt. That is correct.
Chairman Hensarling. And as I understand it, you have
maintained that you are not covered by that policy, is that
also correct?
Mr. Watt. That is correct.
Chairman Hensarling. So even though we have language that
says FHFA will hold all employees accountable for harassment
and related misconduct, you state it does not apply to you,
correct?
Mr. Watt. That is correct.
Chairman Hensarling. Who are you employed by Director Watt?
Mr. Watt. I am employed by the Federal Government as
Director of the Federal Housing Finance Agency.
Chairman Hensarling. Well you are getting a paycheck from
somewhere, your benefits are coming from somewhere? So if you
are not an employee of FHFA, again, who are you an employee of?
Mr. Watt. I don't know who I am an employee of but I know
who the policies of the agency cover and I have explained that
fully in a correspondence that the Chairman, I am sure has,
which I will be happy to read to him and tell him why I think
the policies don't apply to me. If the Chairman--
Chairman Hensarling. When you signed--
Mr. Watt. If the Chairman would allow me? I will read it to
him, it is an e-mail to Mr. Pierce, who was the Postal
Inspector, in which I say on July 16, 2018, I verbally
communicated to Don McLellan he is our EEO person. And my
attorney communicated to Mr. Tom Magnetti FHFA's counsel
retained in relation to Ms. Grimes' claim that it would be
inappropriate to submit to an interview by you.
Chairman Hensarling. Mr. Watt if I could--
Mr. Watt. This decision is based on the advice of my legal
counsel that the FHFA anti-harassment policy and the FHFA
conduct and discipline policy in which allegations of
harassment if--to which allegations--
Chairman Hensarling. OK, Mr. Watt, I get the gist of it,
and now it is very generous--
Mr. Watt. No, no you don't get the gist of it until I--
Chairman Hensarling. I understand--
Mr. Watt. Until I get to why--
Chairman Hensarling. Sir I was very generous with your
time. I was very generous in giving you time, but as you well
know, I control the time.
Mr. Watt. OK, well--
Chairman Hensarling. When I speak, and so I understand. You
are asserting a legal exception, so I will take that at face
value. You are asserting a legal exception. As we both know,
many others do not recognize that legal exception. For
argument's sake--
Mr. Watt. Mr. Chairman, the public needs to understand--
Chairman Hensarling. For argument's sake--
Mr. Watt. That I am not asserting that I am above the law.
I am cooperating fully with--
Chairman Hensarling. I have to tell you, Director Watt, it
sure sounds like it.
Mr. Watt. All other investigations, and they need to
understand why I didn't--
Chairman Hensarling. Director Watt, it sounds like you are.
Mr. Watt. Didn't cooperate with this investigation.
Chairman Hensarling. Director Watt, we will be generous
with the time, but again, when I am asking the questions, I get
to control the time. We both know that, sir.
So here's the question I have to ask. Let's say for
purposes of argument that you have asserted or your legal
counsel has asserted a proper legal protection. Why wouldn't
you, as leader of this organization, voluntarily bind yourself
to a policy that you expect every other employee to be bound
by? Why would you not do that?
Mr. Watt. Mr. Chairman, if you would allow me to get to the
bottom of what I wrote, I think--
Chairman Hensarling. We--I just wish you, when you wrote it
you wrote it for yourself, but please proceed.
Mr. Watt. OK, I will read the rest of it if with your
permission, or, I--you are asking me why I am--why I didn't
participate in this, and I am trying to answer.
My decision is based on the advice of legal counsel, and I
have read that the anti-harassment policy and the FHFA conduct
and discipline policy, to which allegations of harassment is
subject, apply only to employees, quote, ``who meet the
definition of an employee as stated in 5 U.S.C. Section 7511,''
close quote. Under that section, Presidential appointees
confirmed by the U.S. Senate are specifically excluded from
this definition.
FHFA's policies clearly contemplate that the proposing
official, the deciding official, and anyone who could determine
and take any corrective action that may be deemed appropriate
in response to the investigation you complete, would be someone
in the chain of command above the person against whom the
allegations of harassment have been made.
In this case, there is no one inside FHFA with the
authority to exercise these functions. It was for that reason
that I expressed to Don McLellan, in an e-mail dated June 25,
my concerns about what he intended to do with the report of
investigation you will be expected to generate when you
complete your work.
His response to my e-mail raises serious concerns about
whether your investigation could be completed in parallel to an
investigation being conducted by the FHFA Office of Inspector
General without jeopardizing my due process rights and without
substantial duplication of expense and effort, the very things
that Ms. Grimes has actually complained about also, which some
of what she testified I actually agree with.
Chairman Hensarling. OK, Director Watt, you read the
entirety of the relevant portions of the letter. I go back to
my previous question: Was there anything in that letter that
legally prohibited you from voluntarily adhering to the
standards that you expect every other employee under your watch
to abide by?
Mr. Watt. Not a thing in there that would have prevented me
from voluntarily doing that, but--
Chairman Hensarling. That is the question I was looking
for. You also cited earlier in your comments you alluded to the
Postal Inspector's report, but at the same time as you draw
conclusions from that report, you did not cooperate with that
investigation. Isn't that true? You refused to submit yourself
to interviews and to participate in that investigation and you
just cited it as a source. Is that correct, Director Watt?
Mr. Watt. That is correct. I have one page in that report.
It is the page that I just read to you. All the rest of it in
this book is their investigation, and Mr. Chairman, I did
nothing to try to obstruct that investigation. I just didn't
participate in it. I didn't tell any other employee in our
agency not to participate, I didn't tell my legal counsel that
I thought he was wrong in, or anybody that they were wrong in
applying this, in following this process.
What I did was said, look, there's nobody in the agency
when we get this report who will be able to exercise the
responsibilities that the report contemplates that they would
exercise. The only person who has the authority to do that
would be the President of the United States. Now the report
could be forwarded to him, but the IG's report can be forwarded
to him. So--
Chairman Hensarling. Well Director Watt, I--
Mr. Watt. Why would I duplicate efforts here?
Chairman Hensarling. I want to be fair to you. I also want
to be fair to other Members, so I want to wrap this up. Again,
you are on record citing a legal privilege that others do not
recognize. You did not cooperate with the first investigation.
There is an ongoing investigation within the FHFA Inspector
General's Office.
I believe you have stated that you will fully cooperate
with this investigation.
Mr. Watt. I am fully cooperating with this.
Chairman Hensarling. And I don't wish to make threats, Mr.
Watt, particularly to a former colleague, but please know that
this Committee will be monitoring this very, very closely. And
even though you and I are getting ready to depart office at the
same time, I will not hesitate for a moment to use my power of
subpoena if we have any scintilla of evidence that you are not
cooperating fully in this investigation. I hope that this is
not how we spend our last few months in office.
I now yield to the Ranking Member.
Ms. Waters. Thank you very much, Mr. Chairman. While I
would like to have deep discussion about Fannie and Freddie and
the conservatorship, which has gone on now for 10 years, and
you are absolutely correct, Mr. Watt, that it is Congress's
responsibility to do whatever reform that we have talked about.
We cannot get at that today. We cannot talk about it today,
because the accusations that have been made against you are
overriding this entire hearing. And I want to share with you
some of what I said this morning in my opening statement. I
said basically that we have been friends for years. That I have
dined at your home with you, your wife, and your mother.
And I have visited your son's home in California and I have
given gifts to your first grandchild. And so we have been
friends for many years. And I went on to say despite that
friendship, I find myself with the responsibility to allow Ms.
Grimes to come before us today, as other Members of this
Committee have agreed with, to have her say and to be able to
share with us ways in which she believes she has been harmed
basically by you.
And I just want to say that you raised a question about why
we would allow her to come and use this forum to present her
case when in fact there's a lawsuit pending. And while that has
been the regular order of business, not entertaining those who
would like to come before the Committee who have losses
pending.
Let me just share with you this is a different day and a
different time. And what women have come to realize is that
many of the processes that are in place absolutely work against
them being able to not only present their case but to fight for
what they believe is justice and equality and to tell what is
happening to them, particularly as it relates to sexual
harassment.
In the House, we have some of our Members who are taking a
look at the way that we have dealt with these complaints over
the years and they are changing all of that.
They are changing all of that because they find that they
have worked to their disadvantage. So any questions about why
she is here, it is because again it is a new time and a new day
where we are not complying with or continuing with existing
policies and procedures that have worked against them and left
them silenced when they have complaints about discrimination
and harassment.
Sexual harassment and discrimination are wrong and against
the law. And so I and others responded to the request. I have
also said that because of our relationship and our friendship,
if this was a court of law I would have to recuse myself
because of that relationship.
This is not a court of law, this is a Committee of Congress
with oversight responsibility and we have deemed with this
hearing that we would use our oversight responsibility to allow
Ms. Grimes to come today and share with us her complaint about
that which she has experienced and to let us know that perhaps
we need to do some corrections in law.
Gave us some advice and pointed out things that could be
done to avoid the situation that she has been involved with.
Now you have given us your side of this story, you have
explained to us why you have acted in the way that you have
acted, you have talked about the investigations that are still
going on and the fact that lawsuits are pending.
Having said that, is there anything else that you would
like to add to your response that would help us to understand
why you have taken the steps that you have taken and the way
that you have decided to deal with this issue other than what
you have already said and what I have recounted to you?
Mr. Watt. Madam Ranking Member, first of all let me just
say how much I appreciate your friendship and my first
grandchild certainly appreciates you, he thinks the world of
you because you did give him his first California gift.
So, and I would be remised not to say that. I heard Ms.
Grimes' testimony, and there were some things in there that I
actually agreed with very much. I mean one of the concerns here
is the duplication of processes makes litigating these cases
extremely expensive.
The Ranking Member well knows that I practiced law in a
civil rights law firm for 22 years. And one of the biggest
impediments that we saw was the ability of litigants to finance
litigation in this area and in every other area.
But to have multiple duplicative processes for dealing with
these cases adds to the expense. In this case, we had the
Postal Inspector's report investigation, we then have the IG's
investigation, we will next have an EEO investigation.
And that every time you have an additional investigation,
and if the EEO investigation doesn't resolve it and people get
together and resolve it through compromise, there will be
litigation that will go on for years.
And I found myself in the practice of law having to tell
plaintiffs look, don't get involved in these processes if you
don't understand that. The old adage that justice is slow is an
absolutely true adage.
And to it has been added, the notion that justice is also
expensive. And it actually got more expensive in this case
because of these allegations that were made against me, because
at that point our inside counsel couldn't deal with it, that is
why people have been tipping around and not talking to each
other.
I was very sympathetic to that part of Ms. Grimes'
testimony. Nobody can talk to each other about what is going on
anymore. I can't provide leadership because I have been recused
from every aspect of it, including the process of whether and
when she will get promoted.
That can be very frustrating and that part of it I can
relate to very much to her frustrations. So anything that could
be done to streamline this process and cut out some of the
duplication, which is why I pointed to the expense and
duplication in the last sentence of my e-mail to Mr. Pearce.
Ms. Waters. OK, Mr. Watt, let me just say this. Just as you
are experiencing your frustration, she has been experiencing
frustration also.
Mr. Watt. Absolutely.
Ms. Waters. And when we talk about that kind of
frustration, we cannot help but witness the confirmation
process in the Senate, in which several women have come forth
with grave accusations against Judge Kavanaugh who has been
nominated for a seat on the Supreme Court. That hearing process
is a travesty and questions remain about whether all of the
women who have made allegations will be allowed to testify
before the Senate Judiciary Committee.
In this atmosphere and in this time where women have come
forth and they have decided that they are going to step out,
they are going to tell their story, they don't care what the
processes are because of this frustration. We have allowed her
to come here today and guess what, Mr. Watt? These kinds of
processes are going to be undone in the future over and over
again in ways that we have never seen before. And so we are at
that point in time where she came, she told her story, she was
very articulate in telling her story, you are extremely
articulate as a lawyer in telling your story.
We have oversight, perhaps we will come up with even some
laws that will deal with some of what we are learning. But the
fact of the matter is, I think there is one lesson in all of
this maybe for you, and that is, it is a new day, it is a new
time, and the old processes don't work well anymore. We can say
if you have a lawsuit pending, you can be heard in this
Committee, that is different. And so I would hope that you
would have an appreciation for that and I thank you for your
testimony, and he is about to gavel me to shut. And I will
yield back the balance of my time.
Chairman Hensarling. Time of the gentlelady has expired.
The Chair now recognizes the gentlelady from Missouri, Mrs.
Wagner, Chairman of our Oversight and Investigations
Subcommittee.
Mrs. Wagner. Thank you, Mr. Chairman. Director Watt, I have
some very important policy and oversight and investigation
questions, and in my capacity as Chairman that I have to ask.
But I would be remiss if I didn't start by staying that earlier
today, Ms. Grimes testified that you would not submit to the
internal investigation because you believe that you could not
be disciplined.
Ms. Grimes testified that you refused to abide by the
internal investigation because no outcome of that investigation
would be able to hold you accountable. Additionally, the Fifth
Circuit ruled that your office and your agency are
unconstitutional because of your isolation from oversight. I
have a very simple question. Director Watt, who do you report
to? Is there anyone who you believe has oversight of your
actions?
Mr. Watt. I report to the President of the United States,
and I can be removed if he finds that I have done something
improper with cause. And that is the problem we have here. But
even if my agency were organized in a different way, that would
still be the case. Suppose I had a three-person commission--
Mrs. Wagner. You do not--I reclaim my time. You do not hold
yourself to the same standard that you hold your employees to?
Mr. Watt. I do, yes.
Mrs. Wagner. But you refuse to have participated in any
investigation and do not believe that anyone has oversight? You
cannot be disciplined for any of the allegations? You cannot
possibly even participate in that investigation?
Mr. Watt. Mrs. Wagner, I am fully participating in these
investigations. I wish I didn't have to, but I am--
Mrs. Wagner. No, I don't think you are, sir. You were asked
if you have admitted you could voluntarily participate but you
are not participating in the sexual harassment proceedings and
you have held yourself to a different standard. I am going to
move on.
Director Watt, in the 2018 IG report concerning FHFA's
Housing Finance Examiner Program, the IG states that not only
has a new training program not produced new examiners, but the
entire program has now been suspended after receiving an
anonymous online tip about the quality of the training. The
anonymous tip talked about the lack of professionalism with
training, et cetera, et cetera.
The IG reports that after this anonymous tip, FHFA
suspended the training program. Director Watt, FHFA spent $7.7
million of taxpayers' money on a crucial training program,
which apparently lacks professionalism among other things, but
more importantly cannot complete its mission to train even one
more commissioned examiner. What steps has FHFA taken to remedy
these problems, sir?
Mr. Watt. We are constantly engaging in efforts to upgrade
our examiner capabilities.
Mrs. Wagner. How many years will it take Director Watt?
It's been over 7, and you don't have one new examiner? And you
have spent $7.7 million.
Mr. Watt. Let me give you a little history if you don't
mind.
Mrs. Wagner. I don't have much time and I have a lot of
ground to cover, sir.
Mr. Watt. This agency, FHFA, was a brand new agency, stood
up as a combination of prior agencies. We inherited all of the
examination staff from those prior agencies.
Mrs. Wagner. Have you added any new examiners? Are you in
fact, one less down?
Mr. Watt. Yes we have.
Mrs. Wagner. All right. I am going to let you submit the
rest of this in writing. I am going to move on. FHFA--I will
move on. Mr. Mayopoulos, let me revisit some questions I had
for the Inspector General. Did Fannie Mae, and these are yes or
nos, very quickly, did Fannie Mae recommend to FHFA, in 2017,
that Fannie Mae consolidate and relocate its Northern Virginia
offices to a new office built to Fannie Mae's specifications?
Yes or no?
Mr. Mayopoulos. With respect, Congresswoman, I don't think
I can answer it yes or no, but we did make a recommendation to
consolidate our offices.
Mrs. Wagner. Is it true that the primary reason Fannie Mae
wanted to move to these new offices was because moving to these
new offices would enable Fannie Mae personnel to work in a
quote, ``open workspace environment?'' Yes or no.
Mr. Mayopoulos. No. That was one factor, but it was not the
primary factor.
Mrs. Wagner. Director Watt, did you approve using and
spending $727 million, $727 million, three quarters of $1
billion, while in your conservatorship, let me remind you, of
the taxpayers' money to relocate the Northern Virginia
workforce from buildings that you owned to renovated buildings
that you now rent?
Mr. Watt. The net effect of that move was to yield more
than $300 million to the tax bill, Mrs. Wagner.
Mrs. Wagner. You said you could sell your own properties
for $140 million, how much did they sell for, Director Watt?
Mr. Watt. Net effect of that decision was to return over
$300 million.
Mrs. Wagner. It does not add up. How much did you sell that
building for, Director Watt?
Mr. Watt. I don't know how much--
Mrs. Wagner. $90 million, let me remind you, is what you
sold it for. And you spent over $727 million of the taxpayers'
money moving to a rented building.
Mr. Watt. Yes ma'am.
Mrs. Wagner. On top of money--
Mr. Watt. That is absolutely consistent with what we have
been trying to do.
Mrs. Wagner. Director Watt, wow.
Mr. Watt. Downsize Fannie Mae, reduce the number of
employees they have--
Mrs. Wagner. The statutory response. Reclaiming my time.
Your statutory responsibility sir, is to--
Chairman Hensarling. Time is up.
Mrs. Wagner. Preserve and conserve the assets and property
of Fannie Mae.
Chairman Hensarling. Time.
Mrs. Wagner. And I would say that you have--
Chairman Hensarling. Time of the gentlelady.
Mrs. Wagner. Statutory responsibility. I yield back.
Chairman Hensarling. Time of the gentlelady has expired.
The Chair wishes to alert all Members. There is currently a
vote on the floor. There is a series of two votes. We will
clear one more Member in the queue. We will temporarily recess
and then reconvene. The Chair now recognizes the gentlelady
from New York, Ms. Velazquez.
Ms. Velazquez. Thank you Mr. Chairman. Mr. Watt, I
certainly take no pleasure in today's hearing. In fact, it
deeply saddens me to have a former colleague to come before us
while confronting such profoundly disturbing allegations. I
think that our Nation is entering a watershed moment. Women are
stepping forward and they are making their voices heard.
The fact is, any time there is an imbalance of power, there
exists the possibility for abuse and for sexual misconduct. So
I would like to say to you, Mr. Watt, that it is my hope that
you comply completely and wholly with all the ongoing
investigations. So my question to you is, it is my
understanding that the U.S. Postal Service conducted an
investigation into these allegations made against you and I
understand exemption that you are asserting.
But in retrospect, do you believe not submitting to an
interview was a mistake?
Mr. Watt. No, I don't believe that because the statute says
the policies don't apply to me. I don't know how many more
times I can tell you that. And I have tried to explain why they
don't apply because the Postal Inspector does the report. The
Postal Inspector sends the report to our agency. If I had done
something wrong and the Postal Inspector found that I had done
something wrong, there's nobody in our agency who would have
the authority to do anything about it and that is the bottom
line of what we are talking about here.
Now, if the Postal Inspector's report was prepared for the
President of the United States for him to make a determination,
that would be an entirely different thing because he would have
the authority to do something about it.
Ms. Velazquez. I guess you also understand the type of
example that you believe this demonstrates to other employees.
How do you think they take the fact that asserting a legal
exception, allowing you not to be interviewed, is taken by the
rest of the employees? I understand your explanation. I guess
that at some point we will have to address this issue.
Mr. Watt, what type of leader do you believe you are?
Mr. Watt. Congresswoman Velazquez, I think if you look at
my record throughout my whole life, from the day I started in
the practice of law in a civil rights law firm, you will find
nobody, or few people, who are more committed to the things
that you all have talked about today which is erasing all the
disparities between African-Americans and other minorities and
the majority community; erasing disparities between women and
men, which is why I have always tried to conduct myself in a
way that does exactly that.
I am a big supporter of the MeToo Movement. I think it is a
wonderful thing, but it cannot be a substitute for going
through the legal process because, to be quite honest, this
Committee can't deal with this in a legal way and redress Ms.
Grimes' claims; the courts can. There's a whole EEO process to
do that.
I share, and to be clear with Representative Waters, I
didn't object to the hearing. What concerned me was that I got
2 days' notice and we changed the whole course of a hearing
that I thought was going to be about oversight and things that
I have been trying to do for the last 5 years. I have not
criticized anybody about having this hearing. I am just telling
you there is a process about which Ms. Grimes' claims will be
adjudicated. This Committee doesn't have the authority or
capacity to do that.
Ms. Velazquez. We understand that. I yield back Mr.
Chairman.
Chairman Hensarling. Time of the gentlelady has expired.
There are two votes pending on the floor. Pending those votes,
the Committee stands in recess.
[Recess.]
Chairman Hensarling. Committee will come to order. The
Chair now recognizes the gentleman from Michigan, Mr. Huizenga,
Chairman of our Capital Markets Subcommittee.
Mr. Huizenga. Thank you, Mr. Chairman. And I am going to
move to our other witness here in a bit, but I have one quick
question for you Mr. Watt. Do you believe that you have run the
FHFA properly and in a professional and positive and proper
manner?
Mr. Watt. I do, and I could give you some statistics on
that.
Mr. Huizenga. OK, that is OK.
Mr. Watt. But I won't bother, but yes, my answer is yes.
Mr. Huizenga. Yes. And a little while ago, you acknowledged
it has become dysfunctional. You said nobody's talking to each
other. You have recused yourself. Earlier, Ms. Grimes said that
she was a direct report to you. You have said--
Mr. Watt. She is not a direct report and--
Mr. Huizenga. You have--
Mr. Watt. Never has been.
Mr. Huizenga. You have said they removed--I checked with
counsel. My understanding is that you have delegated that
authority to your chief of staff which is still connection to
you. So it seems that there are still some things that need to
be cleared up there. But Mr. Mayopoulos, I have a question for
you, please.
As I understand, your new downtown office building was
built to above Class A standards appropriate for a major
financial institution, that is above the standards prescribed
for the quote, ``most prestigious building competing for
premier office user with rents above the average area.'' Is
that correct?
Mr. Mayopoulos. No, I don't think that is correct,
Congressman. I appreciate the question, but to the extent that
there were enhancements made, they relate to serve business
resiliency and redundancy needs.
Mr. Huizenga. I am not sure what business resiliency means.
Mr. Mayopoulos. So for example, we had to install backup
generators to make sure that our operations would not go down,
and we built a trading--
Mr. Huizenga. I am reclaiming my time. As I understand,
Fannie Mae justified the level of amenities to the FHFA, as a
necessary and substantial part to attract and retain talent and
maintain existing employees. Is that true?
Mr. Mayopoulos. One of the factors that went into this was
being able to attract and retain talent, yes.
Mr. Huizenga. OK. Director Watt, I understand that FHFA has
agreed with this rationale. Is that true?
Mr. Watt. That is correct. And there a number of other
rationales for what we did, but we also agree with those
rationales, yes.
Mr. Huizenga. OK. Mr. Layton, turning to Freddie and
recognizing that not all things are the same, Freddie plans to
continue operating its D.C. headquarters in space that is Class
A but not, quote, ``large financial institution fancy,''
correct?
Mr. Layton. Yes.
Mr. Huizenga. In fact, Mr. Layton, your headquarter's
buildings are--I understand now that some are described as a
relatively frugal Class A office space. Is that accurate?
Mr. Layton. I would say it is average.
Mr. Huizenga. Average? OK. I think we have a few pictures
up here with that, on the slides. And now with this slide, in a
strategic facility planning deck, from this June, I find it
interesting.
My family's in construction. Earlier, at a previous hearing
I, maybe this is a technical term, I freaked out when I saw
some of the construction that was going on, including the lunch
huts that were there, and a number of other things.
But we have a picture of the current headquarter facility
next to the new Fannie Mae headquarter building, and note that
you have a bullet comparing our building to the new Fannie
headquarters that says, quote, ``very functional Class A space,
but not glamorous.'' How do you manage with that space? Are you
losing--yet, you are losing employees. Is that correct?
Mr. Layton. Are you addressing this question to me?
Mr. Huizenga. Whoever wants to take this, I guess, yes,
sure.
Mr. Layton. We are not losing employees. We have a
relatively low turnover rate. The buildings were inherited from
many years ago. They are adequate, and we attract our employees
by a combination of the nature of our work, we think, the
culture we have.
Many are attracted, in fact, almost everyone's attracted by
the mission component, as opposed to just being a commercial
company, and the space is adequate for that.
Mr. Mayopoulos. And Congressman, to the extent you are
addressing that question to me. What I would say is that our
old spaces were actually quite poor, in terms of condition. We
have been in them for a very long time.
Mr. Huizenga. Justifying the bridges.
Mr. Mayopoulos. I'm sorry?
Mr. Huizenga. I mean the previous justification to the
bridges going across was workflow and flow of employees. I mean
do you still feel that way?
Mr. Mayopoulos. With respect to the bridges, first, two of
the bridges are there by part of the base building. We don't
own the building and the developer put it up.
Mr. Huizenga. We are distinctly aware you don't own the
building.
Mr. Mayopoulos. And second, that was by design, frankly. We
understood that we were to put ourselves in a position where,
if we needed to be wound down, we would be able to exit these
spaces and we can do that since we lease these spaces.
We sold our spaces in D.C. at the top of the market, and we
have sent $118 million to the taxpayers as part of our
quarterly dividends from those proceeds. But with respect to
the bridges we did have an additional third bridge installed so
that we could organize our business units that is both
vertically and horizontally in a way that would allow the best
use of the space.
It was an effort to make it efficient. Overall, we have
gone from 3 million square feet nationwide in our real estate
portfolio to 2 million square feet. We have eliminated 80
percent of our offices, what offices we do have are 30 percent
smaller. Almost all of our people work in 6 foot by 8 foot
workstations made out of plastic.
Mr. Huizenga. Being home to the three largest office
furniture makers in the world, that is not a surprise. You go
in to most new places they have workstations with no cubicles
at all. So I still believe that you are behind the curve on
that. With that, Mr. Chairman, my time has expired.
Chairman Hensarling. Time of the gentleman has indeed
expired. The Chair now recognizes the gentleman from Missouri,
Mr. Clay, Ranking Member of Financial Institution Subcommittee.
Mr. Clay. Thank you Mr. Chairman, I thank the panel for
being here today. I have a question in the area of appraisal
waivers. And here's--I represent St. Louis, Missouri and we
have a challenge with appraisals as far as being able to get
the correct comparables for certain neighborhoods, especially
underserved neighborhoods.
And so I notice that the FHFA IG recently published a white
paper that provides an overview of GSE appraisal waivers. And
the paper states that the waiver programs that are currently
structured are modest in size and include stringent eligibility
standards making the risk from these programs small.
However, advocates have raised concerns that these
appraisal waivers could present significant risk for GSEs as
well as borrowers, and that these waivers could be a slippery
slope in the wrong direction. I don't necessarily buy into that
concept, but can you talk about the risks that these appraisal
waivers present to the GSEs and to borrowers? I guess we will
start with Mr. Layton and move down.
Mr. Layton. Certainly. We look at appraisals as a piece of
information, so we can have comfort in the credit quality of
the loans we buy and then put our guarantee on, that is their
purpose. They're expensive, the history of appraisals as a
technique is they are often good but they have some uncertainty
and inaccuracy.
And in the financial crisis they often didn't do very well.
So our people put attention to alternative ways to do it. And
we have come up with a less expensive--that is to the
borrower--way to do it for a modest percentage. Over time we
will see how it goes, and we think it is as good, or better
than traditional appraisals for that small segment. So we think
it is very little incremental risk to us and it is quite a
saving to the borrower.
Mr. Clay. Mr. Layton, I am totally in agreement with that
approach. Mr. Mayopoulos, anything to add?
Mr. Mayopoulos. I think Mr. Layton has described it very
well. We likewise feel very comfortable about this. We have
limited the use of appraisal waivers to circumstances where we
think there are appropriate factors to ensure that we have an
accurate picture about the collateral value.
Mr. Clay. And, Mr. Watt, the white paper found that in the
majority of cases where a loan was eligible for an appraisal
waiver from Fannie or Freddie, the lender or borrower chose to
get an appraisal anyway.
Fannie and Freddie claim that these waivers provide benefit
for lenders and borrowers by reducing cost and delays, but
lenders and borrowers appear to be foregoing these benefits.
What does this say about the value of these appraisal waivers?
Mr. Watt. I think it says more about the history of
appraisals and the way housing has been done in the past
because everybody assumes that appraisals have sometimes more
value than they actually provide to the buyer, or to the
lender.
So the notion that we could do a modest, small appraisal
waiver program and that would eliminate people going and
getting appraisals, probably, it is just not happening. But
over time, if the appraisal waiver process proves to be
effective and people start to understand what it does, it could
have some impact.
Mr. Clay. And as I mentioned earlier, that is a challenge
in the St. Louis community in particular because you cannot get
fair comparables. Especially when you have someone who has
invested in a property, have put a couple $100,000 into a
property and the immediate neighborhood has no comparable
properties and so I think it just gives an opportunity for
people to get a true reflection of their value. And I thank the
three of you for your responses, and yield back Mr. Chairman.
Chairman Hensarling. OK. Time of the gentleman has expired.
The Chair now recognizes the gentleman from North Carolina, Mr.
Pittenger.
Mr. Pittenger. Thank you, Mr. Chairman. Thank each of you
for being here today. Mel, good to see you. We both have served
the same district, we know many of the same people. You have
had some serious allegations charged against you, I commended
Ms. Grimes for the manner in which she processed this out.
At the same time I would say to you, that you are due a due
process and you should have your day to fully explain in a
court your position and your side of this. So I am not one who
jumps to conclusions, and allows the rampant jumping on of an
issue to bring a conclusion to any issue.
So with that in mind, I do thank you for the service that
you offered, I do have concerns over oversights and abuse of
expenditures and moneys. But at this moment I am going to defer
to the Chairman of the Committee and give him the balance of my
time.
Chairman Hensarling. I thank the gentleman for yielding.
Mr. Watt it is old ground, I don't want to necessarily re-plow
it. I would just say this, when we were discussing your legal
theory on why you did not have to participate in the first
investigation or under the EOC guidelines you published. I know
you to be a very intelligent lawyer, but sir it just doesn't
pass the smell test and it doesn't pass the American people's
outrage test that there are people in Government who expect
others to adhere to different standards than they are willing
to adhere to.
And I, sir, I just believe that you have made a big
mistake, please don't make it on the next investigation. My
next question, Mr. Watt, my first question is, there was a
scorecard in 2014 that FHFA put forward.
And the goals were set totally at the Director's
prerogative in turning, maintaining credit availability,
foreclosure prevention, reducing taxpayer risk, building new
secondary market infrastructure.
Again, we know that your term is up I think you said
January 6th. There will be a new Director. And I guess my line
of questioning is geared toward what can that new Director do,
and I agree with you, ultimately through three Administrations
and five Congresses, I am appalled that we have not been able
to find common ground on reforming the GSEs.
But isn't it true that the new Director would be free to
eliminate Fannie Mae's HomeReady and Freddie Mac's Home
Possible Advantage that has what many people view, including
myself, as a risky 3 percent down payment programs?
You are requiring all GSE-purchased loans to have LTVs over
95 or higher. Isn't it true that a new Director would be free
to set new goals?
Mr. Watt. That is true, the Director of the FHFA has a lot
of discretion.
Chairman Hensarling. Isn't it true then also a new Director
could discontinue the GSE's HARP, or Home Affordable Refinance
Program, that enables borrowers with little or no equity to
refinance their loans once the program hits its January 2019
eligibility deadline?
Isn't it true that a new Director could discontinue that
program?
Mr. Watt. Well the HARP program is going to be discontinued
anyway because the usage of it is diminishing over time and we
have already set a date. But the director could advance that
date, yes.
Chairman Hensarling. Isn't it true that a new director can
increase g-fees?
Mr. Watt. That is correct.
Chairman Hensarling. Isn't it true that a new Director
could suspend all GSE contributions to the Housing Trust Fund
and Capital Magnet Fund as required under HERA after a finding
that they, quote, ``would contribute to the financial
instability of Fannie and Freddie?''
If a future Director made that finding, could they indeed
suspend all GSE contributions to the Housing Trust Fund?
Mr. Watt. That is correct.
Chairman Hensarling. Isn't it true that a new Director
could set the sole criteria for all GSE REO disposition
programs like the Neighborhood Stabilization initiative that
the sale of foreclosed homes maximized financial returns to the
Government?
Mr. Watt. That is correct.
Chairman Hensarling. Isn't it true that a new Director
could require the sale of the common securitization platform
currently jointly owned 50-50 by Fannie and Freddie, and they
could sell it into an open market competitive auction to the
highest bidder?
Could a new Director do that, Mr. Watt?
Mr. Watt. I am not sure the director would have that
authority without serious consultation and approval by the
Secretary of Treasury and probably legislative approval,
because that would involve disposal of assets.
Chairman Hensarling. The point is that we have entrusted
housing finance reform and concentrated all the risk in two
institutions, and we have put one unelected relatively
unaccountable individual in charge and given them plenary
powers, and this is where we are.
Time of the gentleman has expired, The Chair now recognizes
the gentlelady from New York, Mrs. Maloney, Ranking Member of
our Capital Markets Subcommittee.
Mrs. Maloney. I want to thank the Chairman and Ranking
leader for calling this hearing and I know that I was in other
meetings and not able to be here for the testimony that
concerned harassment, but I did want to put in the record that
this Congress has taken the issue very seriously and passed a
resolution that requires, every year, Members of Congress and
their staffs to take anti-harassment information protection to
understand what it is, how to prevent it, how to report it, and
this is required each year.
We have also passed a bill that tasks the Committee on
House Administration with coming out with new regulations to
ensure that there is transparency and compliance in the offices
and has a lot of protections for victims.
It used to be that a harasser or a Member of Congress would
have a free attorney, but the victim would not. Now attorneys
are supplied to both for their positions and for getting a
resolution to it.
It's a crime that has incredible damage on women, many
never ever recover from it. It should be treated seriously and
I am pleased that under the leadership of Jackie Speier who
authored this and Lois Frankel and really Nancy Pelosi that
this legislation has moved forward and been enacted.
I do have one policy question, Fannie and Freddie are known
for creating housing, but after the financial crisis, many
people were losing their homes and were not able to finance it.
And I would like to ask anyone on the panel, what are you
doing to help people stay in their homes? Do you have
flexibility to help them pay back their loan, to reach out to
them and help them?
They did not cause this financial crisis and many of them
have suffered from it and have lost their homes, and I would
like to know, are you making efforts to help people stay in
their homes and if you are, what are they?
Mr. Watt. I actually address that at some length in my
written testimony. I think the industry and the GSEs and FHFA
learned a lot from the housing meltdown about mitigation and
how to deal with the prospect of default.
So we have revamped all of the mitigation programs to try
to speed up the process, first of all to try to anticipate when
people are about to default before they default and try to deal
with getting to them and figuring out alternatives for them to
be able to continue to make their payments.
It used to be that if somebody didn't make their payments,
it was perceived to be advantageous to lenders to foreclose. I
think that perception has completely gone 180 degrees in the
other direction. It is not either beneficial to the borrower
nor is it beneficial to the lender, nor is it beneficial to the
GSEs and the investors who back these loans.
So the whole attitude toward dealing with the prospect of
default and default after it occurs as has changed over this
time.
Mrs. Maloney. Would the other gentleman like to comment?
Mr. Mayopoulos. One thing I would just add to the
Director's comments is that you can see these programs in
action recently with respect to the terrible hurricanes and
other natural disasters that have affected the country, last
year and this year. So in the past, we would have and our
servicers would have made it much more difficult, frankly, for
borrowers to gain relief.
Now automatically both Fannie and Freddie authorize our
servicers to give relief to borrowers for up to 3 months
without any communication whatsoever and can enter into longer-
term forbearances up to a year with communication with the
servicer, so there is much greater flexibility and hopefully
much greater responsiveness by servicers when people end up in
trouble especially for reasons beyond their control.
So I think you can see those kinds of things working very
effectively in response to some of the recent natural
disasters.
Mrs. Maloney. My time has expired. Thank you.
Chairman Hensarling. Time of the gentlelady has expired.
The Chair now recognizes the gentleman from Michigan, Mr.
Trott.
Mr. Trott. Thank you Chairman. I want to thank the CEOs
from Fannie and Freddie for all the progress that the
organizations have made over the past 10 years. I have a
question on GSE reform but I hope they will have time to get to
it. Mr. Watt, this whole discussion today is a bit sad. You
have over 30 years of dedicated public service, the North
Carolina Senate, 20 years in Congress. You have been at FHFA
for 4 or 5 years now and now we are having a discussion
presumably in the twilight of your career in public service
about Ms. Grimes.
And with that being said, a few things you have said today
bother me. So first, we have already discussed that you believe
the harassment policy doesn't apply to you because, as you
explain it, you are a political appointee and you have no boss.
Second, you said you didn't cooperate with the investigation
because you didn't have to and then you proudly pointed to page
47 of some document where you said that Ms. Grimes said you
never groped, touched, or had been intimate with her. So I will
accept that as true since she said it, but omitted in that
statement is that you never verbally harassed her or
propositioned her noticeably absent.
If I was your lawyer, I would say of those, if that is your
defense so far, we have not mounted a very good explanation to
refute these allegations. So do you care to provide me any
other explanation as to why what Ms. Grimes says is not true?
Mr. Watt. I already provided that explanation in the second
point. The first point that you referred to I did say. But the
second point was there's ongoing processes that will determine
what I did, what I said, what I didn't do, and what I didn't
say, whether somebody has tampered with the tapes or not, will
be decided in the EEO context--
Mr. Trott. Absolutely, as the Chairman said, I will reclaim
my time sir.
Mr. Watt. Subject to those--
Mr. Trott. I am going to reclaim my time, Director. As the
Chairman said, we are not a court of law that is for sure. But
let's talk about some of the things you said and did then. So
you mentioned that Ms. Grimes was your mentee. Is that correct?
Mr. Watt. Yes.
Mr. Trott. OK, so should a mentor comment in a sexually
provocative way regarding a mentee's experience, yes or no.
Did you ever comment to Ms. Grimes about her sexual
experience?
Mr. Watt. I would not think so but--
Mr. Trott. But did you--you have a summer home correct?
Mr. Watt. Pardon?
Mr. Trott. Do you have a summer home in North Carolina?
Mr. Watt. Yes.
Mr. Trott. Did you ever invite your mentee to your summer
home?
Mr. Watt. I have invited male and female--
Mr. Trott. We are just talking about Ms. Grimes right now.
Mr. Watt. Mentees to--
Mr. Trott. Did you invite Ms. Grimes to your summer home?
Mr. Watt. I did not.
Mr. Trott. Ms. Grimes has never been to your summer home.
Mr. Watt. No.
Mr. Trott. OK.
Mr. Watt. And I did not invite her to my summer home. I
told her if she wanted to use it for her own purposes or if she
was going to North Carolina and I have offered that to other
employees, male and female.
Mr. Trott. Just to reclaim my time sir. Have you ever been
at your summer home, however fortuitous it may have been and
Ms. Grimes was there as well?
Mr. Watt. No.
Mr. Trott. Did you ever suggest to Ms. Grimes that you meet
outside work to avoid any staff perceptions?
Mr. Watt. Yes.
Mr. Trott. OK, and did you have dinner just one on one with
Ms. Grimes a few times?
Mr. Watt. Yes.
Mr. Trott. Did you ever ask Ms. Grimes to call you off the
books?
Mr. Watt. No.
Mr. Trott. No, OK. During one of the dinners with your
mentee, did you ever say to her, Well you probably wanted to
know what I wanted to talk to you about? I mentioned to you
there is an attraction here that I think needs to be explored.
In my experience there are four types of attraction: Emotional,
spiritual, sexual, or friendship. So the exercise here is to
find out which one exists. Did you ever make such a comment?
Mr. Watt. I absolutely think if you are going to mentor
somebody, you have to know what they are thinking--
Mr. Trott. About attraction?
Mr. Watt. I don't have any recollection.
Mr. Trott. I have a lot of mentees, I have never discussed
attraction with any of them.
Mr. Watt. Well then you haven't mentored them and figured
out if they are giving the wrong vibrations and you are not
clear with them what the expectations are, I think you have
problems.
Mr. Trott. I am pretty confident I am a pretty good mentor
over the years. Did you ever ask Ms. Grimes about her tattoo?
Mr. Watt. I don't recall.
Mr. Trott. Don't recall, OK. So I thank you sir. I hope
this process plays out and after 30 plus years, you have a few
months to go and I am surprised you haven't resigned from FHFA
but I will leave that to you.
I have a quick question in my last 20 seconds for the GSEs.
So a good friend of mine from Fannie Mae, Mike Quinn, suggested
many years ago to me--he was the head of credit risk at Fannie
Mae, that the easiest way since Congress can't get GSE reform
done since it is so political and so partisan is to get Fannie
and Freddie out of the refi business. Wouldn't that be a simple
way? I recognize the liquidity in the secondary market for
middle-class families trying to refi, but on balance that would
be an easy way because I think 2/3 of your portfolios are refi.
Just a quick comment on that solution, as simple as it may be.
Mr. Mayopoulos. That is obviously a policy decision for a
body like this to make. We are in the business of providing
liquidity and that is what we do currently today. It's
obviously up to policymakers to decide how broad and wide that
program should be.
Mr. Layton. There are really two separate issues. Refis
are, as Tim said, a policy issue whether we are allowed in the
business, but whether we are in it or not, that is not going to
end conservatorship. That doesn't raise capital. That doesn't
give a government guarantee or change the unpaid implicit
support.
Mr. Trott. Thank you, I yield back.
Chairman Hensarling. Time of the gentleman has expired. The
Chair now recognizes the gentlelady from Arizona, Ms. Sinema.
Ms. Sinema. Thank you Mr. Chairman and thank you to the
witnesses for being here today. Mr. Chairman, no one, no matter
how powerful they are or to which political party they belong,
is above the law. And when a Government official is accused of
wrongdoing, we, on this Committee, must be committed to finding
the facts, conducting rigorous oversight, and holding those who
do wrong accountable.
Director Watt, I am deeply concerned by allegations that
you sexually harassed an employee at your agency, while serving
in your capacity as Director. These allegations require a full
and impartial investigation so that we can learn the facts and
take actions.
Sexual harassment is always wrong, and those who engage in
this hurtful behavior do not deserve our trust and should
resign. My question is not on the claims, but on your refusal
to cooperate with an independent investigation of the
allegations against you. The Office of Equal Employment
Opportunity at FHFA requested an independent agency investigate
and report on these claims.
They tasked the U.S. Postal Service investigators with
producing the report, but you refused to comply with their
investigators. You argued, in part, that because you are a
Presidential appointee, you are not subject to your own anti-
harassment policy. But current law and the EEOC's own website
make clear that our laws prohibiting discrimination and
harassment apply to all employers and apply in every aspect of
employment.
Common sense dictates that this law covers everyone, from
the most junior hire to the most senior executive. My question
to you is, can you cite specific statute or court precedent
that concludes that you, as a Presidential appointee, should be
treated differently for the purposes of Federal employment law?
Mr. Watt. I have cited the statute, and that has been made
a part of the record in response to a question that the
Chairman asked. But, be clear that I am not above the law. I
don't believe that I am above the law. The EEO process will
play itself out. It will--if you think I am not going to be
part of a process by which these allegations are determined,
you are just wrong.
I am not part of that Postal process, but I am cooperating
with the OIG and there will be an EEO process that will apply
to me and everybody else in this case.
Ms. Sinema. So Director Watt, you believe that the anti-
harassment policy statement that you signed in August 2017 does
not apply to you in the same way it applies to other employees
at your agency.
Mr. Watt. In this enforcement, it does not apply to me, and
as obligations not to harass, it does apply to me. But, and I
have explained this, I have tried to explain this as well as I
can. When the Postal Inspector investigator finished his
report, the report then comes to our agency.
If there's a determination that something has been done
wrong, there's nobody in the agency who has the authority to
take action against me.
If that investigation was being done for the President of
the United States, it would be a whole different thing, because
there's somebody above me who has the authority to take action.
But there's nobody in our agency to accept that report and take
any action based on it.
And I have tried to explain that. I am trying to avoid
participating in multiple investigations, to be quite honest,
because they are expensive and they are time consuming. But I
am--if you think I am going to--I am trying to avoid or will
avoid all investigations, that is just not the case.
Ms. Sinema. So Director--
Mr. Watt. Equal employment opportunity law applies to every
employee in the world, in the United States. Federal employees,
private employees, they--I still have to go through that
process.
Ms. Sinema. So Director, you believe that, since you were
not legally required to follow the anti-harassment policy, in
this instance, do you believe that you have an ethical or
professional duty to do so?
Mr. Watt. I think I have followed the policy. I haven't
followed the process that policy anticipates, and I have tried
to explain why.
Ms. Sinema. Mr. Chairman, I know my time is expired. If I
might, a few more moments?
Chairman Hensarling. The Member may proceed.
Ms. Sinema. Thank you. Mr. Chairman, I am not satisfied
with the Director's answer, and I don't think that the folks
that I serve back home would be satisfied with this either.
Frankly, people back home are sick and tired of politicians and
bureaucrats who think they can play by a different set of
rules.
So if we need to tighten our laws to clarify that everyone
must follow the law and comply with these investigations, then,
Mr. Chairman, I would call on my colleagues, anyone who is
willing for us to join together and do just that. Thank you,
Mr. Chairman.
Chairman Hensarling. Time of the gentlelady has expired.
The Chair now recognizes the gentleman from Arkansas, Mr. Hill.
Mr. Hill. I thank the Chairman for the time. And one of the
obligations of the Congress, under the Constitution, is
oversight. And I want to thank you and the Ranking Member for
the way you have conducted the hearing today.
It's a difficult topic, and I think the Ranking Member and
the Chairman deserve the recognition of our Members, joint
Members in organizing and holding this hearing. It's been a
difficult one, and I appreciate your leadership.
I would like to start with Mr. Mayopoulos about a Fannie
Mae question I have. It applies to both Freddie and Fannie, but
let me start with you. Back in the Dodd-Frank debate, Chairman
Frank said that the profligate availability of credit is a
major reason for the current problem. That is the housing
crisis.
Too many loans were made to people who shouldn't have
gotten them. We need to reduce the pattern of people getting
loans who shouldn't have gotten them because they couldn't
repay them. And he was talking about the obligations under
Dodd-Frank to limit the debt-to-income ratio and create the
definition of a qualified mortgage that all financial
institutions are obligated to have when they originate a loan.
But as I understand it, there's an exception in the bill
that is referred to--if a loan is eligible for purchase by one
of the GSEs, they don't have to follow that rule that Mr. Frank
felt was so very, very important and such a compelling part of
bad organization policies leading up to the crisis.
So I would like to understand why you have gone, at Fannie,
from 12 percent of loans that are over 50 percent debt-to-
income--not 43 percent, which is the qualified mortgage test,
but 50 percent in 2013 to now 36 percent of loans in March
2018. Why is it that you have such an appetite for loans that
are well above the 43 percent DTI?
Mr. Mayopoulos. Thank you for the question, Congressman. I
appreciate it. And certainly, I would agree with you that loan
origination standards, before the crisis, were quite poor.
Credit standards deteriorated quite substantially, and there
were lots of participants in that deterioration.
But I do think some of the blame also lies with Fannie and
Freddie, leading up to that. We have certainly taken that to
heart, we have learned our lessons, and we have imposed what we
believe are good, sustainable credit standards.
We don't believe, and I think the evidence bears this out,
that there is one and only one factor that determines whether a
loan is a good loan or not.
Mr. Hill. Well look, I think a lot of bankers agree with
that. But, the U.S. Congress didn't agree with it. I had a real
problem with it when I was in the private sector, but that is
what the law is in Dodd-Frank.
Why is what is good for the goose not good for the gander
in this instance?
Mr. Mayopoulos. That's been a policy judgment that--
Mr. Hill. Who made that policy judgment?
Mr. Mayopoulos. Fannie and Freddie did not make that policy
judgment, that was--
Mr. Hill. Did the Director of FHFA make that policy
judgment?
Mr. Mayopoulos. No, I believe that the Congress made that
policy judgment.
Mr. Hill. And based on what facts?
Mr. Mayopoulos. I don't know, I wasn't present for that
debate and that decision. But what we have attempted to do is
to apply good credit standards. So we consider debt-to-income,
we consider loan-to-value, we consider people's ability and
willingness to repay, we consider their credit history--
Mr. Hill. Isn't this a loophole right now that is allowing
that market to creep up in a way that is not available to
community banks across the country, and I would turn to
Director Watt and seek your view on that from a prudence point
of view as the conservator of these two organizations, that
even if it were permitted by law in this GSE patch as it is
referred to colloquially, isn't it a poor financial practice to
let it go from 12 percent of loans purchased to 36 percent in a
very short period of time?
Just an answer based on your knowledge as Director, but I
mean--or you can answer personally. But either way, I would
like an answer.
Mr. Watt. My answer both personally and as Director is that
does not necessarily mean that is imprudent going--
Mr. Hill. Well I think a lot of bankers wouldn't say it was
prudent either. A lot of factors that go into it, but that is
not what the Congress determined for originators.
Mr. Watt. But understand that neither Fannie nor Freddie
makes loans, so if bankers have that opinion, nobody is forcing
them to make those loans. So neither Fannie nor Freddie make
loans.
Mr. Hill. But they used to set the gold standard. My time
has expired, Mr. Chairman.
Chairman Hensarling. Time of the gentleman has expired. The
Chair now recognizes the gentleman from Missouri, Mr. Cleaver,
Ranking Member of our Housing and Insurance Subcommittee.
Mr. Cleaver. Thank you, Mr. Chairman. Mr. Duffy, who was
here earlier today, and I have had a number of meetings, our
offices are across the hall from one another. And so we have
gone over to each other's offices quite a bit, talking about
GSE reform.
And, I made myself clear, I think that the secondary market
has to take steps to make sure that we can continue to produce
more affordable housing, particularly in States like mine where
the Governor unilaterally discontinued low-income tax credits.
And, of course, I believe in the Government backstop. There
are a lot of folk who have a lot of ideas and many of them have
shared those with Mr. Duffy and I.
I am wondering Mr. Watt, as well as the two CEOs from
Fannie and Freddie, do you believe that we need GSE reform, and
if so, what would be most critical?
Mr. Watt. I have been beating that drum for 5 years as the
Director, and probably was beating it as a Member of Congress
before that. But yes, I definitely think the conservatorship is
not a sustainable form.
And a lot of the issues really that are being raised today
about what Fannie and Freddie should or should not do, this is
the result of this protracted period of conservatorship where
you have basically staffs of 600 to 700 people, which is what
is in my agency, trying to micromanage the housing finance
market, which has thousands and thousands and thousands of
participants in it to a conservatorship.
It's just not a sustainable model, and until Congress takes
steps to get us out of it, I just don't--we are doing
everything that we can do to maintain a good, vibrant,
efficient market.
And to make sure that Fannie and Freddie are doing their
part of the market responsibly. But this degree of uncertainty
about what the future of housing finance in this country is, is
just not good for anybody.
Mr. Cleaver. Mr. Mayopoulos, should we just label the GSEs
as SIFI and be through with it?
Mr. Mayopoulos. Well thank you for the question,
Congressman. Clearly there has been a lot of reform at Fannie
and Freddie under the leadership of FHFA, both under Director
Watt and Acting Director DeMarco before him and Director
Lockhart before him.
So lots and lots of positive change has occurred, but the
taxpayers are still exposed to what seems to be an ill-defined
potential exposure. The amount of private capital that is
willing to come into this market I think is substantially
reduced so long as this uncertainty exists, and we will
continue to have some of the debates that we are having today,
so long as we continue to operate in conservatorship.
So to me, housing finance reform is absolutely essential if
what we want to have is a vibrant housing finance system,
because we won't get market participation otherwise. The other
thing I would say is we spend a lot of time talking about
housing finance reform.
The fact of the matter is the country has a serious housing
challenge, the country needs a housing strategy. There are many
people who cannot get access to good, affordable housing
whether it is housing they own or housing that they rent.
And we are spending too much time debating housing finance
as opposed to how do we give people good housing. That should
be a primary focus.
Mr. Cleaver. Mr. Layton.
Mr. Layton. Yes, sir. I will just add two points to what
has already been said. There are many ways to do GSE reform, it
is absolutely necessary in the long run. As per my testimony,
there's certain minimum flaws in the old system which should
not carry over.
Any version should have those flaws removed. Inadequate
capitalization was not a good idea, the unlimited investment
portfolios was not a good idea, the unpaid for implicit
Government support was not a good idea.
Those things should be a minimum, so I just put that out
there. Building on Tim's comment about the housing problem, the
problem is housing production of units whether rented or owned,
this country, based on averages, should be producing 1.5 to 1.6
million a year and we are only producing about 1.3 million.
That is the problem.
Mr. Cleaver. Well thank you, Mr. Chairman.
Chairman Hensarling. Time of the gentleman has expired. The
Chair now recognizes the gentleman from Georgia, Mr.
Loudermilk.
Mr. Loudermilk. Thank you, Mr. Chairman. I thank the panel
for being here. Director Watt, I actually have a different line
of questioning I want to get into. But you said something a
minute ago that is just weighing on my mind so heavy.
I am having a hard time getting over this as a father and
as a husband. Mr. Trott asked you about your line of
questioning in mentoring someone regarding attraction that do
you think that is an appropriate response, much less the
responsibility of mentoring, is probably the most ridiculous
thing I have ever heard since I have been in Congress.
I can't imagine that anyone in a management position would
think that would be a part of mentoring, much less,
appropriate. So I don't expect you to respond. In fact, I just
needed to say that to get that off my mind so we can move on to
other issues.
Director Watt, I don't know if you saw the previous panel
with the FHFA IG, but I discussed an e-mail among Mr.
Mayopoulos and Fannie board members that I believe shows a
profound lack of respect and understanding for a company that
is in FHFA conservatorship and has taken more than $116 billion
in taxpayer funds. I will read the e-mail again which is from
Bart Harvey, the head of the nominating and governance
Committee and Chairman of the board.
The e-mail says, gents, I have seen it all now, that the
OIG could report this to the House Financial Subcommittee is
astonishing in Mel's placation regime. That OIG quotes, as the
FHFA agreeing with the majority of its reports on MRAs gives
rise to another potential wave of regulation by FHFA.
If I were a Member of the Committee and got this report, I
would have a cow. That 5-plus trillion of assets may not be
operated in a safe and sound manner.
As we know on the board, financial oversight exceeds
anything the private sector gets by a multiple degree even if a
lot of it is wasted time and energy. The single biggest waste
of time, money, and talent are the dueling agencies, someone,
Mel, ought to tell the House the load of crap the OIG has
heaped on them, but he won't. The games being played are a
waste and abuse of taxpayers' money and stymie real progress
and we accept them, getting out of conservatorship is the only
answer to this pollution foolishness--best, Bart.
My question Dr. Watt is, I realize you often have
legitimate differences of opinion with the IG and I respect
that, but are Mr. Harvey's comments an appropriate response to
oversight?
Mr. Watt. Certainly not an appropriate external response,
but I don't know the circumstances under which this was
written, whether it was internal, whether it was just blowing
off steam. He certainly couldn't have expected me to come over
here. I think the e-mail actually says Mel is not going to do
that. But he puts his finger on a very serious thing, which is
the very thing that I have been saying, conservatorship is not
sustainable.
Mr. Loudermilk. That is a difference of opinion.
Mr. Watt. I can't control every single thing that people
say internally, we don't have that capacity. And I am not
subscribing to what he said, but his final point was, we have
to get out of--
Mr. Loudermilk. And I understand that. And that is why I
said I think a difference of opinion, I can understand that. My
question is about the appropriateness of this response. Mr.
Mayopoulos, are Mr. Harvey's comments an appropriate response
to oversight?
Mr. Mayopoulos. No, Congressman, they are not. They don't
reflect my personal views, they don't reflect the views of the
board or the management team. I don't think that is an
appropriate thing for Mr. Harvey to have communicated in the
way that he did. But, as Director Watt said, it was an internal
communication among a very small number of Directors, and--but
you didn't see me concurring with Mr. Harvey's comments.
Mr. Loudermilk. Thank you for your direct response. Last
question, Director Watt, on a different topic, have you ever
stated that the hiring process at FHFA can be a charade process
due to your ultimate power to make decisions one way or the
other or for any reason whatsoever, and have you ever engaged
in a charade process as it pertains to hiring?
Mr. Watt. I have certainly tried not to engage in a charade
process and I think when the full text of these conversations
comes out, you will see that was a totally different set of
circumstances, that didn't even apply to Ms. Grimes in fact.
Mr. Loudermilk. Thank you, Mr. Chairman. I yield back.
Chairman Hensarling. Time of the gentleman has expired. The
Chair now recognizes the gentleman from New York, Mr. Meeks.
Mr. Meeks. Thank you, Mr. Chairman. Director Watt, this
morning, I have said, and I have said it previously, that the
allegations that are against you are of course deeply
concerning and should be treated as such and that there should
absolutely be a thorough and expeditious investigation to get
all the facts, and action should be taken accordingly after all
the facts are in. I have also said this morning that I have
three daughters, as you know, and that is very worrisome to me
when you hear any allegations like that particularly, and I
admitted, is when it comes from friend. But that is how I feel,
I said I know how it would feel if something as alleged by Ms.
Grimes was my daughter, I would be very upset about that.
I have been at another hearing, in and out all day, I
haven't had a chance to hear all of your statements, et cetera,
and what the questions were. So what I will simply do right now
is just to ask you if there's anything else that you would like
to say that may have not been asked or anything at that time,
because as I said we want to hear all the facts from everyone
in that regard. And so I don't know if there's anything else
that you would like to say at this particular time.
Mr. Watt. I would certainly emphasize that if anybody here
has the notion that I believe that I am above the law, they
should dissuade themselves of that notion. I have explained why
I did not participate in the Postal Investigator's process but
there is an FHFA IG process that I am fully participating in
and there is an EEO process that has already started that I
will participate in.
So there's going to be plenty of opportunities for the
facts to come out and for Ms. Grimes to be heard and for me to
be heard about the context of whatever was said. And I fully
appreciate the process. So I will stop there. I just think, I
am as disturbed, I guess, as you are about if these allegations
were true. But I just don't think this Committee is going to be
able to determine that, that is going to have to be determined
in a legal process.
And I think that is the appropriate place for it to be
determined, because there are rules of evidence, there are
requirements, there's a whole set of due process that is
associated with that that will give both Ms. Grimes, and me,
the opportunity to be given due process.
I participated in that due process, legal process, for 22
years before I came to Congress, and I know that it is probably
the best for sorting through contested facts and law.
Mr. Meeks. Thank you. I wanted to get in a substantive
question, I don't know if I can have the time. But because
there was May 22, DOJ indicted four individuals for a multi-
dollar mortgage fraud in New York.
And it was applied--I am talking about multi-family
housing. So my question really was, is the issue that the
Congress should revisit to include multi-family housing so they
could make sure it still fits under Dodd-Frank? Something
specifically on multi-family housing there.
Mr. Watt. Well I think in single family housing, and in
multi-family housing there's always a small group of people who
are going to try to game the system or defraud, or do something
illegal.
There are laws on the books that say you shouldn't do that,
of course. And these people will be caught in the great
majority of cases but assessment of whether apartments are
occupied or not occupied--generally done by the lender, not by
Fannie or Freddie--independently.
Chairman Hensarling. Time of the gentleman has expired. The
Chair now recognizes gentleman from Florida, Mr. Ross.
Mr. Ross. Thank you, Chairman. Mr. Chairman, as a lawyer I
have been a student of the law and I have always had a strong
passion for the independence of judiciary as well as the
fundamental nature and right of due process.
And regardless of the outcome, Director Watt, I hope that
at the end of the day that, with this matter before you and
those that are contemporaneously occurring and may ensue later
on, for whatever reason--and I hope not, but that we as a body
can say that due process was never denied and that justice took
its course.
What I would like to do now is talk to you a little bit
more about responsibilities of your business, and specifically
with credit risk transfers. We all know that the GSEs have
amassed amazing amounts of liability and risk to the detriment
of taxpayers.
And to your credit, Mr. Watt, you have engaged in and
started a credit risk transfer program that, from one who
believes in responsible risk management and for the opportunity
for the Federal Government to cede some of that risk elsewhere
to the capital markets, because I firmly believe there is
sufficient capacity out there to meet the need to reduce that
risk.
I would like to ask a few questions related to that program
today. Mr. Watt, in your testimony, you say that a portion of
credit risk has been transferred on more than $2.47 trillion of
unpaid principal balance since 2013.
You also note that, in 2017, the enterprises transferred a
portion of credit risk on $689 billion of single family
mortgages. These are impressive numbers, but what concerns me
is the qualification of a portion has been ceded to the credit
risk transfers. What you have told us is there's some amount of
risk that has been transferred from the total portfolio for
unpaid balances and single family mortgages.
But you have not actually given us an amount of what that
portion is, or into that insight. So I wanted to give you some
opportunity now, and Mr. Mayopoulos or Mr. Layton, you may also
speak to this of, what is the quantification of that portion of
credit risk transfers that has been employed with the GSEs?
Mr. Layton. Might I go first?
Mr. Ross. Sure.
Mr. Layton. My testimony, the written testimony gave the
numbers. The quantification is hard to do, but the FHFA has
recently put out a proposed capital system, and in there a
quantification is possible. For new flow single family
mortgages, for the last few years, 60 percent of the capital
that would be required for the credit risk has been laid off to
the private markets. We just did a new and enhanced structure
where--
Mr. Ross. Sixty percent of the liability--
Mr. Layton. The credit--the capital we would need for the
credit risk has been laid off--to the private market. We just
did a new enhanced structure where the number is over 80
percent in our multi-family business, the number is 80 to 90
percent.
Mr. Ross. Now are these frontend or backend? Are these
where we see the risk on the securitized mortgages, or--
Mr. Layton. The answer is the vast majority is backend
because they have proven more efficient to do.
Mr. Ross. But doesn't that adversely impact the market? I
mean, if we are not doing--shouldn't we have a balanced
portfolio? Shouldn't we have those on the backend being seated
as well as those on the frontend through the private mortgage
insurance organizations?
Mr. Layton. Doing credit risk transfer on behalf of and
officially for the taxpayer, means a lot of math and a lot of
issues about what investors are willing to charge us to take
the risk off their hands--
Mr. Ross. But that is all the market, we have to have the
market forces play into that. What you are essentially doing is
you are saying you are taking the less credit risk--the ones
that are the cherry picked if you will, and give it to the
market without allowing for the upfront--the ones that have the
greater risk, to be assessed and managed by the markets by
putting everything in the backend. You have 95 percent in the
backend.
Mr. Layton. The backend just means it is done later in the
process, the risk taking is exactly the same at the end.
Mr. Ross. It's the same. So you are telling me that the
backend risks don't take any of the frontend risks? That they
don't take the first percentage of risk?
Mr. Layton. I think there's a communication problem here.
Mr. Ross. Yes.
Mr. Layton. Backend and frontend means when it is done in
the process, you are talking about whether it is first loss,
near first loss--how far out it is. And so if I wanted to buy
private mortgage insurance and require that, that would be a
frontend risk. That is a--they tend to do a first dollar loss
risk--
Mr. Ross. Right, but how much have you acceded of that? How
much of first dollar loss have you ceded?
Mr. Layton. I don't have the numbers, but the largest
credit risk transfer traditionally has been, in fact, that kind
of private mortgage insurance on all our high, on virtually all
our high LTV, that is already sent, LTV business.
Mr. Ross. One last question, just because I want to make
sure that this charter creep. You all have been playing the--
you are the market. I mean, you said that in your testimony
earlier. Can you comment on what GSE's role is in how to ensure
that lenders, mortgage insurers, service appraisers, and other
market participants are not pushed to the sidelines by GSEs?
Anyone?
Mr. Mayopoulos. First I would say I think what we provide
is, actually both companies provide a platform for lots of
market participants to participate in this market. I mean, the
reality is that, as Mr. Layton pointed out in his opening
statement, small and medium-sized lenders get to spend in this
market in a way that they--
Mr. Ross. And I know my time is up, but you have an unfair
competitive advantage is the bottom line.
Chairman Hensarling. Time of the gentleman has expired. The
Chair now recognizes the gentleman from Washington, Mr. Heck.
Mr. Heck. Thank you, Mr. Chairman. Mr. Layton, you are my
new guy. Thank you.
Mr. Layton. OK.
Mr. Heck. Thank you for saying succinctly that which I have
been trying to get more people to say louder in more places for
some time. We have a housing crisis in this country that is
caused by a severe underproduction of housing units of all
kinds. We need to build more houses of all kinds and shapes and
sizes for all our neighbors. Period. Now let me tell you a
quick story as a preface to a question I will ask.
I have a friend who sold his very modest three-bedroom home
in Northwest Seattle a couple years ago. An older home. A nice
little home. Not big at all. He chose from among--I believe the
number was 17 competing offers on day one of listing and he
ended up selling his home for $150,000 more than he asked for
it. The reason, we don't have enough inventory.
We don't produce enough housing units. And I want to remind
everybody why this is important. Failure to correct the break
between demand and supply--this isn't a demand problem; this is
a supply problem--holds back the growth of the economy. Every
recession in modern history has been led out of by housing
construction until this one, which is part of why it was so
anemic and lasted so long. And the reason's obvious, as I like
to say. When you buy a home, that transaction doesn't stop when
they hand you the key to the door because you replace the
doorknob and the curtains and you do landscaping and you do
furniture, et cetera.
It's a very powerful propellant of our economic engine. But
even more insidious and important, is that when we make it
unaffordable for people to be able to purchase a home--and this
is a rental and homeownership question--it defers the beginning
of the single most powerful and important net worth building
program that most Americans have. This is a crisis and it is
underproduction for the very facts you stated earlier. So
here's my question. Why and what can we do about it?
Mr. Layton. Well thank you for the question.
Mr. Heck. You are my new guy.
Mr. Layton. Yes. It is overwhelmingly not a housing finance
issue. The GSE's can at the margin, and do at the margin try to
help, but it is primarily a production problem. In the usual
way people point--
Mr. Heck. Excuse me, Mr. Layton. When I say what can we do
about it, I didn't mean that this is miserable. I want to say
what can we do about it. I did not mean the GSEs. I mean what
can we do about this serious underproduction problem?
Mr. Layton. My understanding of the problem and big
problems like this don't have one single cause. I have seen the
problem laid at the feet of everything from shortage of labor,
which went to other jobs after the financial crisis and house
production, shortage of materials, NIMBY-ism, extensively--
Mr. Heck. Which relates the availability of land for
construction.
Mr. Layton. Yes. Or zoning, allowing more dense housing
versus less dense housing, a preference for urban housing in
the country, that has been a big shift, and it takes a lot
longer to produce housing in urban areas than usually in the
suburbs, in terms of clearing land and getting permits, towns
charging very large amounts for building permits because--
Mr. Heck. The smallest home in my hometown, before you even
begin construction, has an average of $42,000 in impact fees.
Mr. Layton. Right. So--
Mr. Heck. Now factor that into the affordability of starter
homes.
Mr. Layton. So I have given talks as part of my job, in
which I call for, I hope that policymakers do a broad-based
look at all this because it is many things causing this
problem.
Mr. Heck. So as it relates to the GSEs, what, if anything,
do you do with respect to construction loans? Because I am with
you, this isn't a housing finance issue for the consumer but it
is for production. So what you do with respect to ADC any of
them--for multi-family units?
Mr. Layton. There are two things related to specifically
supply in multi-family. One we do and the other is a discussion
with the FHFA, some additional things we might do in pursuit of
our mission. What we currently do today is we have an emphasis
on redevelopment or refurbishment loans to prevent housing from
falling out of the housing stock through not having enough
money to be maintained. That is both something we like doing
and have some programs on.
Part of them are under the new Duty to Serve regulations.
One of them is the just announced pilot we have to do mezzanine
financing, which is exactly targeted at this kind of housing to
be fixed up and maintained. And construction lending is an
ongoing topic. It has not been a tradition of the GSEs to do
that.
Mr. Heck. I would simply encourage you to do anything and
everything you can to promote increased production. And I thank
you for accurate and important and compelling problem
statement. I yield back, Mr. Chairman.
Chairman Hensarling. Time of the gentleman has expired. The
Chair now recognizes the gentleman from Illinois, Mr. Hultgren.
Mr. Hultgren. Thank you. I would like to yield to the
Chairman.
Chairman Hensarling. Well I thank the gentleman for
yielding. Mr. Layton, it has been a long time since you issued
this comment. And let me say that I could not admire your
credentials more and my understanding is you did not seek this
job, the job sought you.
Thank you for taking it on, sir. I don't want to put words
precisely in your mouth, but I think in your opening statement
you said either we have a far safer and sounder housing finance
system or we have a safe and sound housing finance system,
something along those lines.
Mr. Layton. I said we had a safer, sounder housing system
than we had 10 years ago.
Chairman Hensarling. I would just say for the record, we
did have a previous hearing on the GSE topic and we heard from
Mr. Watt's predecessor, Ed DeMarco, who believes that systemic
risk is growing in the system, not fading.
We also heard from Ed Pinto, who is a former chief risk
officer of Fannie Mae who believes that basically the same
thing, that he is seeing risk increase within the system and
believes we have a risky government housing policy and an
unsustainable home price boom. So I just wanted to let you know
there are some other informed opinions who believe that maybe
things aren't quite as rosy. Director Watt, another question
for you.
In May, Bloomberg reporter, Joe Light, issued a story
entitled, ``Fannie Mae Advocacy Ban doesn't Stop Lawyer from
Pushing Views.'' I trust you are familiar with the story. Are
you familiar with the story?
Mr. Watt. I am generally familiar with the issue. I don't
know about the specific story.
Chairman Hensarling. It has been reported that despite your
ban, and when I say your ban, it was put in place by one of
your predecessors on quote, ``all political activities
including lobbying.''
The story says that quote, ``a top Fannie Mae executive has
done just that over the past few months, quietly meeting with
people inside and outside President Donald Trump's
Administration.''
The story went on to state that such lobbying happened on
multiple occasions with multiple parties, with a Fannie
executive stating quote, ``he believes that many of FHFA goals
can be achieved without Congress through modification to the
companies' bail out contracts with the Treasury.''
So Mr. Watt, when did you first become aware of these
allegations that Fannie officials have been engaged in lobbying
activities?
Mr. Watt. These specific allegations I have found out
recently when we started to produce documents in response to
the Committee's request. There is a ban as we as you--
Chairman Hensarling. So you acknowledge the ban.
Mr. Watt. Yes.
Chairman Hensarling. That is the current policy.
Mr. Watt. Yes. That is the current policy and we have gone
out of our way to say to both management and boards that
neither they nor we should have a position on housing finance
reform.
Chairman Hensarling. Director what--
Mr. Watt. You have heard me say that over and over again.
Chairman Hensarling. But what does FHA do to monitor this
and what are the consequences for violating the lobby ban?
Mr. Watt. The notion that 600 people could monitor
everything that is being done by both of these enterprises is
one of the fallacies of conservatorship. So we tell them not to
do it. When we find out that they violated it, we try to take
action and reinforce it and tell them again not to do it.
Chairman Hensarling. I am not saying there's a challenge.
But I think what I hear you saying, there's not really a formal
monitoring process then, correct?
Mr. Watt. There is. The requirement is that if they are
going to have meetings, we expect them to notify us. We expect
them to take one of our staff with them.
Chairman Hensarling. And how about consequences? What are
the consequences for violating the ban?
Mr. Watt. There are no real consequences other than, what
do you say if somebody says hey, I have a personal opinion. I
was in a meeting, somebody asked me my view. I don't know that
there's a real consequence.
Chairman Hensarling. The time of the gentleman has expired.
He was kind enough to yield to me. But I think, Director Watt,
that is part of the problem. And listen, it goes beyond you but
when I look at this system, what I think I am hearing is,
again, there's no consequence for violating a lobby ban if you
work for GSEs.
Heightened credential standards applied to every
systemically important financial institution but the GSEs. The
qualified mortgage applies to all financial institutions but
the GSEs, and the FHFA policy on any harassment applies to all
employees but the GSEs regulator, the head of FHFA. I would
just submit for the record this is a problem.
The time of the gentleman has expired. The Chair now
recognizes the the gentlelady from Ohio, Mrs. Beatty.
Mrs. Beatty. Thank you Mr. Chair and to the Ranking Member.
To the panel who are here today. I had originally planned to
come today and ask questions about the oversight of the Federal
Housing and Financial Agency's role as conservator and
regulator of GSEs.
You may or may not know, I have long history in housing.
Unfortunately after sitting through the first panel, I decided
that I would not talk about the housing issues and I would
really make an opening statement and then direct a question to
you Director Watt.
It was difficult this morning when I walked in here and
listened to Ms. Grimes' statements, read much of the
information she had provided, and listened to tapes. As a
woman, as a woman of color, a woman who had to work my way up
the ladder to success; the time that we are in now with women
fighting, with me marching for MeToo, today is very sad and
difficult and painful.
To you Director Watt, someone who mentored me, helped guide
me through this very Committee that I am on, makes it even more
difficult. When I think about her three complaints that she
listed, I was very disturbed when she asked for her anonymity.
I was very clear in the panel too that I did not like that
the Office of the Inspector General had called and shared with
you her name. Nor was I pleased with the answers that she
provided me. As a matter of fact, I was appalled. I was sad.
More importantly, I have fought for equal pay for equal
work as a hallmark and in the forefront of my advocacy. While I
appreciated your comments, Director Watt and Ms. Grimes,
stating that there was no sexual contact; she was very clear in
her statements matching yours.
Further she applauded you for your housing work. But she
felt that she has been sexually harassed. She felt that there
was hostility in the work place and uneasiness for her to come
to work.
She also stated that she had worked two jobs and not been
compensated with equal pay for equal work. She also has
provided to us and others that there was some disparity with
white men and their pay and African-American or minority women.
She asked us for resolve. She did not appear to be bitter
or angry; she appeared to be disturbed and I am disturbed. I
have a few questions.
I would like to ask you Director Watt, does Ms. Grimes
still report to you and do you think it is a problem for an
organization or an agency that someone who has alleged sexual
harassment should still have to report to the people she
alleges harassment?
And would you be willing to allow Ms. Grimes, if she still
does report to you, to directly report to a third party? You
can answer that, and then last if there are any comments that
you would like to make.
Mr. Watt. Ms. Grimes has never reported directly to me.
Mrs. Beatty. Does she report up to you in any way?
Mr. Watt. Everybody in the agency reports indirectly to the
Director. I mean, the Director is in that sense everybody
reports to me. But she has never reported directly to me.
Mrs. Beatty. But do you all have direct contact about her
work or her promotions or her path--
Mr. Watt. Very little contact. And that is what makes this
so difficult, because unless you know the factual circumstances
of all of this, you really can't assess it.
And it will be assessed. I mean I hear exactly the
frustration that you are feeling. I feel the same frustration.
You asked me can I move in such a way that she doesn't report
to me? Well--
Mrs. Beatty. Let me ask this because I am going to have to
reclaim my time. Is there any way you could have or could get
her the equal pay for the work, change her title to as the top.
Would there not be some influence if you were aware of this?
And assuming from what we have read and the tapes, that you
all have had conversations about her employment.
Mr. Watt. I have made a number of efforts to try to be of
assistance to Ms. Grimes to move her through the process. But
there are certain things that I--
Mrs. Beatty. So any reason she didn't get through the
process? Is there any reason that she didn't get equal pay for
equal work?
Mr. Watt. I don't know that. I do not know that. And I
don't have the capability to determine it on my own. And now I
have been removed from the process because I don't--there's
really nobody in the agency who really can make these decisions
anymore.
So, it is frustrating to me. I can't reorganize the agency,
especially with reference to her complaints because I have had
to disqualify myself from any decisions in this process.
So, I mean I can understand her frustration, I understand
your frustration. But to presume, before there's a fact-finding
process, there has in fact--
Mrs. Beatty. I think my time is up, Director Watt. I yield
back my time.
Chairman Hensarling. The gentlelady's time has expired. The
Chair now recognizes the gentleman from Maryland, Mr. Delaney.
Mr. Delaney. Thank you, Mr. Chairman. And I share the same
sentiments as my friend and colleague from Ohio. I would like
to ask Mr. Layton and Mr. Mayopoulos questions about
comprehensive housing finance reform.
As you are probably aware, the Chairman and I introduced
bipartisan legislation. But after this morning's testimony by
Ms. Grimes which I found to be credible and highly persuasive,
I am going to direct my questions to you Director Watt.
But I do want to thank Mr. Layton, Mr. Mayopoulos for being
here. And thank you for leadership in these organizations. You
and your fine teams have done a great job stabilizing these
institutions for the benefit of all Americans.
And I hope you continue to be a strong voice for housing
finance reform into the future. So thank you for being here.
Director Watt, this is a disappointing hearing because I,
like most of the colleagues on this panel, know you as a man
who has dedicated most of your life to fighting against
injustices. And you should be commended for that.
But the testimony of Ms. Grimes this morning was very
disappointing to me and I know to my colleagues. And as someone
who spent my life prior to coming to Congress starting and
leading two companies that ultimately became public companies,
I believe that the tone at the top is incredibly important in
any organization.
Whether it be a business, a nonprofit, and certainly the
Government. And I think we are lacking of the right tone at the
top in Government in particular these days. And I just wanted
to ask you some questions to see if you agree with that
assessment.
Do you believe that a leader should do everything they can
to cultivate a workforce or workplace that is free of
harassment?
Mr. Watt. Yes.
Mr. Delaney. Do you believe that a leader should act in a
way that sets a clear example for the entire organization?
Mr. Watt. Yes.
Mr. Delaney. And do you believe that the personal conduct
of leadership personnel is important to that mission?
Mr. Watt. Yes.
Mr. Delaney. So in light of the way you answered those
questions, I would like to ask you, why do you then hide behind
language or quibble with whether a standard that is very clear
should also apply to you, because we are going to actually
change the norms in society, so that we live in a world where
women are not harassed in the workplace.
Have equal pay for equal work, all the things that so many
people fight so hard for. We cannot have people in a position
of trust like yourself, not subject yourself to any
investigation that comes forth. And not explicitly say that a
very clear policy that you signed, does not apply to you.
How can that be a defensible position in light of the fact
that you believe that the tone does matter?
Mr. Watt. So let me distinguish between the standards
applying to me, which I fully endorse and the process applying
to me which explicitly, the law says it doesn't.
And I have tried to explain that on several occasions, and
the reason--
Mr. Delaney. Reclaiming my time Director, out of respect.
But don't you get the sense that no one is buying that
argument? At its core, you as the leader could have embraced
this investigation.
You could have said, technically speaking this doesn't
apply to me, but I am an open book. I want this investigation.
Technically speaking, these particular--
Mr. Watt. And that is exactly what I am saying in the IG's
investigation. I am saying it in the EEO investigation. But to
get a report that nobody can do anything about is, to be quite
honest, a waste of taxpayer money.
Mr. Delaney. It wouldn't have been a waste of taxpayer
money because we would have sat here and we would have had a
more fulsome report knowing you participated in it. And we
spend a lot of taxpayer money sitting here and having this
hearing.
Mr. Watt. But this Committee couldn't do anything about it
either. I mean, the report that the only person really who has
the capacity under the--
Mr. Delaney. Don't you see that everyone is watching, sir.
And it is still not too late to fully embrace this. I mean the
testimony of Ms. Grimes this morning, as I said, was credible
and it was persuasive.
Mr. Watt. A court will determine that Mr. Delaney. It might
be credible to you, it may not be credible, I don't know. But I
am not trying to assess whether it is credible or not. I am
just saying that there are processes in place that will make
that determination.
And I don't think this Committee can really make that
determination. And I didn't think the Postal investigation was
going to be able to make the determination. They would have
gathered facts. They would have given them to who in the
agency? Nobody was in the agency who could do anything about
it.
Mr. Delaney. I encourage you, Director Watt, particularly
in the context of your career, as a very dedicated public
servant, as I have said, who's fought against injustice his
whole life, to think about this concept of the tone of the top
and ensure that his organization that you lead and the position
you continue to hold in public trust, that you are embracing a
full change of the norms in our society, for the benefit of all
women and subjecting yourself to not only that you believe,
from a legal perspective, are appropriate, but from an optical
perspective, are appropriate.
I yield back.
Chairman Hensarling. Time of the gentleman has expired. The
Chair now recognizes the gentleman from Texas, Mr. Green,
Ranking Member of the Oversight and Investigations
Subcommittee.
Mr. Green. Thank you, Mr. Chairman. Again, I thank the
witnesses for appearing today. I do have an affordable housing
question that I will be asking. But before getting there, Mrs.
Beatty has touched upon something that is quite sensitive, in
that, we now have someone who appears to be in a twilight-zone,
wherein, she can't get help because of circumstances that exist
currently, in terms of equal pay, or adjusting, depending upon
circumstances.
Is there any way, I know, I heard your prior testimony, but
is there any way to separate that circumstance from other
circumstances?
Mr. Watt. I don't know what the other circumstances are. I
mean there is a process available to assess all of this. It is
the equal employment opportunity process, and it will be
addressed. And if there have been equal pay disparities taking
place, Ms. Grimes will be compensated for that.
Now is there any way to make that happen before we go
through that process? Mr. Green--Judge Green, you were in the
legal process, you understand the legal process. I don't have
any way to waive that magic wand and address that. I just
don't.
And that is why the legal process is set up, for that very
purpose, to allow all of these determinations to be made,
whether, in fact, there was a disparity, and if so, what it was
and order then, whoever is responsible for that disparity, to
make the payment.
Mr. Green. I understand your point, and appreciate your
scholarly recitation. The unfortunate circumstance that Ms.
Grimes is still without benefits that she would accrue,
assuming a lot of things--and I don't want to assume too many
things.
And the reason I am asking is because, in about 4 months,
you will be gone. Will, at that time, there be a circumstance
such that she can get at least through that process or is that
process going to go on, no one knows how long? Is that the way
we will find ourselves dealing with it?
Mr. Watt. If you understand the equal employment
opportunity process, it could be a protracted process. I think,
perhaps the next Director would not be in a position where he
or she would have to disqualify themselves from making any
decisions about it.
That might speed up the process, but the process is set up
to make these kinds of determinations. And short of going
through that process, there's no way to really resolve this, I
think.
Mr. Green. One more shot at the dead horse, if I may. Is
there a deputy? I don't know your hierarchy, in the sense of
who has authority when you do not have the authority for any
reason. Is there as deputy or someone else that could do this?
Mr. Watt. What happened is because a number of people were
alleged to be participants in making decisions about this,
including our own general counsel and his office. It was
necessary to get outside counsel.
I don't know who would be making the decision down in the
organization. And that is a frustrating thing. I am sure it is
frustrating for Ms. Grimes, and obviously, it is frustrating
for Members of this Committee.
But it will get addressed through the legal process, and
all of these, if there are disparities, all of these will be
taken into account, in the compensation that Ms. Grimes gets.
But the old adage that justice is slow is unfortunately true.
Mr. Green. Mr. Chairman, my time having expired, I would
just like to indicate, for the record, that I will submit my
question with reference to the housing trust fund, for later
answer.
Chairman Hensarling. So note it for the record, there are
no other Members remaining in the queue without objection. The
Chair notes that some Members may have additional questions for
this panel, which they may wish to submit in writing. Without
objection, the hearing record will remain open for 5
legislative days for Members to submit written questions to
these witnesses and to place their responses in the record.
Also, without objection, Members will have 5 legislative days
to submit extraneous materials to the Chair for inclusion in
the record.
This hearing stands adjourned.
[Whereupon, at 6:02 p.m., the subcommittee was adjourned.]
A P P E N D I X
September 27, 2018
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[all]