    [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]