[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



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