U.S. GOVERNMENT PUBLISHING OFFICE

31–418 PDF WASHINGTON : 2018

OVERSIGHT OF THE FEDERAL HOUSING 

FINANCE AGENCY 

HEARING 

BEFORE THE

SUBCOMMITTEE ON OVERSIGHT 

AND INVESTIGATIONS 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED FIFTEENTH CONGRESS 

SECOND SESSION 

APRIL 12, 2018 

Printed for the use of the Committee on Financial Services 

Serial No. 115–84 

( 

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(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

JEB HENSARLING, Texas, Chairman 

PATRICK T. MCHENRY, North Carolina, 

Vice Chairman 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

STEVE STIVERS, Ohio 

RANDY HULTGREN, Illinois 

DENNIS A. ROSS, Florida 

ROBERT PITTENGER, North Carolina 

ANN WAGNER, Missouri 

ANDY BARR, Kentucky 

KEITH J. ROTHFUS, Pennsylvania 

LUKE MESSER, Indiana 

SCOTT TIPTON, Colorado 

ROGER WILLIAMS, Texas 

BRUCE POLIQUIN, Maine 

MIA LOVE, Utah 

FRENCH HILL, Arkansas 

TOM EMMER, Minnesota 

LEE M. ZELDIN, New York 

DAVID A. TROTT, Michigan 

BARRY LOUDERMILK, Georgia 

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 

MAXINE WATERS, California, Ranking 

Member 

CAROLYN B. MALONEY, New York 

NYDIA M. VELA ́ ZQUEZ, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

MICHAEL E. CAPUANO, Massachusetts 

WM. LACY CLAY, Missouri 

STEPHEN F. LYNCH, Massachusetts 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

JAMES A. HIMES, Connecticut 

BILL FOSTER, Illinois 

DANIEL T. KILDEE, Michigan 

JOHN K. DELANEY, Maryland 

KYRSTEN SINEMA, Arizona 

JOYCE BEATTY, Ohio 

DENNY HECK, Washington 

JUAN VARGAS, California 

JOSH GOTTHEIMER, New Jersey 

VICENTE GONZALEZ, Texas 

CHARLIE CRIST, Florida 

RUBEN KIHUEN, Nevada 

SHANNON MCGAHN, Staff Director 

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(III) 

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

ANN WAGNER, Missouri, Chairwoman 

SCOTT TIPTON, Colorado, Vice Chairman 

PETER T. KING, New York 

PATRICK T. MCHENRY, North Carolina 

DENNIS A. ROSS, Florida 

LUKE MESSER, Indiana 

LEE M. ZELDIN, New York 

DAVID A. TROTT, Michigan 

BARRY LOUDERMILK, Georgia 

DAVID KUSTOFF, Tennessee 

CLAUDIA TENNEY, New York 

TREY HOLLINGSWORTH, Indiana 

AL GREEN, Texas, Ranking Member 

KEITH ELLISON, Minnesota 

EMANUEL CLEAVER, Missouri 

JOYCE BEATTY, Ohio 

MICHAEL E. CAPUANO, Massachusetts 

GWEN MOORE, Wisconsin 

JOSH GOTTHEIMER, New Jersey 

VICENTE GONZALEZ, Texas 

CHARLIE CRIST, Florida 

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(V) 

C O N T E N T S 

Page 

Hearing held on: 

April 12, 2018 ................................................................................................... 1 

Appendix: 

April 12, 2018 ................................................................................................... 27 

WITNESSES 

THURSDAY, APRIL 12, 2018 

Wertheimer, Hon. Laura, Inspector General, Federal Housing Finance 

Agency ................................................................................................................... 4 

APPENDIX 

Prepared statements: 

Wertheimer, Hon. Laura .................................................................................. 28 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Green, Hon. Al: 

MarketWatch article entitled, ‘‘CFPB May Fine Wells Fargo as Much 

as $1 Billion: Report’’ .................................................................................... 44 

American Banker article entitled, ‘‘CFPB’s Mulvaney Strips His Fairlending Office of Enforcement Powers’’ ....................................................... 45 

Reuters article entitled, ‘‘Exclusive: U.S. Watchdog Seeks Record Fine 

against Wells Fargo for Abuses’’ .................................................................. 50 

Wertheimer, Hon. Laura: 

Written responses to questions for the record submitted to Representative 

Messer ............................................................................................................ 52 

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OVERSIGHT OF THE FEDERAL HOUSING 

FINANCE AGENCY 

Thursday, April 12, 2018 

U.S. HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON OVERSIGHT

AND INVESTIGATIONS, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The subcommittee met, pursuant to notice, at 10 a.m., in room 

2128, Rayburn House Office Building, Hon. Ann Wagner [chairwoman of the subcommittee] presiding. 

Members present: Representatives Wagner, Tipton, Zeldin, Trott, 

Loudermilk, Kustoff, Tenney, Hollingsworth, Green, Cleaver, 

Beatty, Gottheimer, and Crist. 

Mrs. WAGNER. The Subcommittee on Oversight and Investigation 

will come to order. 

Today’s hearing is entitled, ‘‘Oversight of the Federal Housing Finance Agency.’’ 

Without objection, the Chair is authorized to declare a recess of 

the subcommittee at any time. 

Without objection, all members will have 5 legislative days within which to submit extraneous materials to the Chair for inclusion 

in the record. 

Without objection, members of the full committee who are not 

members of this subcommittee may participate in today’s hearing 

for the purpose of making an opening statement and questioning 

our witness. 

The Chair now recognizes herself for 4 minutes for an opening 

statement. 

The Federal Housing Finance Agency—FHFA—was established 

as an independent regulatory body tasked with supervision and 

regulatory authority of the Government-sponsored enterprises— 

GSE—which include Fannie Mae and Freddie Mac. 

In recent years, FHFA has taken on an additional, somewhat 

unique role, acting as the conservator of Fannie and Freddie. 

As conservator, FHFA is tasked with decreasing taxpayer risk, 

which, roughly, stands at $5.3 trillion, while promoting the role of 

private capital in the mortgage market. 

Unfortunately, acting as both the regulator and conservator of 

Fannie and Freddie creates an obvious conflict. 

FHFA should be shrinking, not expanding, its powers outside the 

scope of its Congressional mandate. Today’s hearing will highlight 

the need for Congress to build a consensus on a more balanced apnshattuck on FSR297 with DISTILLER

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proach to home ownership that relies less on taxpayer subsidies 

and more on private capital and free market incentives. 

Since 2008, U.S. taxpayers have invested nearly $193.5 billion 

into Fannie and Freddie alone, leaving serious concerns about their 

future. 

As to FHFA’s role as regulator combined the GSEs represent one 

of the largest financial institutions in the world with trillions of 

dollars in assets. 

In recent testimony before this committee, FHFA Director Mel 

Watt noted that absent a conservatorship, both Fannie and Freddie 

would be considered systemically important financial institutions— 

SIFIs. 

While other SIFIs are supervised and regulated by the Federal 

Reserve, Fannie and Freddie are not. Unfortunately, it appears 

that the FHFA regulators are not up to snuff. 

FHFA is a young regulator and the IG (inspector general) has 

identified repeated flaws in supervision. Even more concerning, in 

my view, is the fact that FHFA has failed to accept and implement 

all of the IG recommendations designed to fix this issue, as the IG 

put it in a 2016 report titled, ‘‘Safe and Sound Operation of the Enterprises Cannot be Assumed Because of Significant Shortcomings 

in FHFA’s Supervision Program for the Enterprises.’’ 

In this regard, the subcommittee is particularly concerned about 

the GSE’s cybersecurity infrastructure. The increase of cyber 

threats targeting our financial system has increased dramatically 

over the last decade. 

A number of attacks targeting financial services companies rose 

by more than 80 percent last year alone. The inspector general has 

previously reported that FHFA did not complete any of its supervisory activities planned for the 2016 examination cycle relating to 

Fannie Mae’s cybersecurity risks. 

Ultimately, ensuring that the GSEs are protected from all cyber 

threats falls to Director Watt, and the members of this subcommittee should be concerned where an entity controlling highly 

sensitive data, controlling trillions of dollars in assets lacks proper 

oversight. 

In addition to the reports on safety and soundness, the IG’s reports raise serious questions as to whether FHFA is appropriately 

exercising its authority as conservator to ensure that they are good 

stewards of taxpayer money. 

In particular, under conservatorship Fannie Mae elected to relocate a number of its facilities including its headquarters in Washington, D.C. 

According to a report from September 2017, the Office of Inspector General questioned upgrades and finishes that push the total 

renovation cost to $32 million. 

Again, I want to thank the inspector general for her time this 

morning and I look forward to her testimony. 

I now have the privilege of recognizing the gentleman from 

Texas, Mr. Green, the Ranking Member, for 5 minutes. 

Mr. GREEN. Thank you very much, Madam Chair. I thank the IG 

for appearing and I’d also like to just briefly recognize the presence 

of a former member of the committee, Mr. Garrett. He and I rarely 

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agreed on anything but we remain friends, and welcome to the 

committee again, Mr. Garrett. 

I’d like to also, if I may, compliment Mr. Watt for his impeccable 

service, his stellar character. He is a person who has been on this 

committee, served with a—with distinction on the committee and 

is someone that is highly respected in the industry, and I am 

pleased to call him a person that I have great confidence in as the 

director of FHFA. 

I would in no way diminish the value of this hearing. I believe 

that it is an important hearing. But I also contend that there are 

some other things that we should look into and I’d like to cite just 

a few. 

Wells Fargo may be fined a billion dollars for auto insurance and 

mortgage lending. I’ve got several articles here, one from 

MarketWatch that’s styled, ‘‘CFPB May Fine Wells Fargo as Much 

as a Billion Dollars,’’ another that I won’t cite presently but I’ll 

place in the record at a later time. 

I’d like to at some point visit with HUD (U.S. Department of 

Housing and Urban Development) about the disaster relief—that 

recovery effort in Florida, Texas, Virgin Islands, Puerto Rico. They 

are much concerned about this. 

We had a field hearing in Houston just last week on this issue 

and there are many housing issues that—of concern to persons in 

these various areas. We need to at least find out how the money 

will get to some of the recipients. 

For example, will there be a direct funding to a city like Houston 

that has received funds directly before or will the funds go through 

another layer of the bureaucracy such that it may take additional 

time, which means that people will continue to suffer? 

Also concerned about the stripping of the CFPB’s (Consumer Financial Protection Bureau) Office of Fair Lending’s enforcement 

powers. I think that it was very good, Madam Chair, to hear from 

Mr. Mulvaney yesterday. But I do believe that there are two sides 

to these stories and the advocacy groups have a voice. 

That voice ought to be heard such that we can better understand 

what’s happening over at the CFPB. Are we really about to restructure it such that it will no longer be the watch dog that we intended and perhaps become some sort of lap dog? The CFPB is 

there for the consumer. 

It is the Consumer Financial Protection Bureau, not the financial 

system’s protection bureau, and I think we need to look into this. 

I would also mention to you that invidious discrimination is still 

afoot in this country. Mr. Mulvaney said as much yesterday, and 

we know that Bancorp South has been fined more than $10 million 

for discrimination and that the finding was based in part on testing 

where there were persons who were actually sent into the bank, 

had an experience with the bank officers in attempting to get 

loans, and it was determined that persons of color were treated differently when they went into the bank. 

They didn’t have the same access to capital. Access to capital is 

important in this country. Invidious discrimination in banking is 

something that we can deal with. 

We can mitigate and eliminate this type of behavior in banking 

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pirical evidence and testing is one of those tools. The CFPB has already engaged in testing as early as 2016. 

So these are some issues of concern, too. Advocacy groups have 

a voice. We should hear from them as well. I appreciate what we 

will hear today. 

I’ve had the opportunity to peruse the testimony and I look forward to hearing more and saying more about some of these other 

things as well. 

I will yield back the 2 seconds I have. 

Mrs. WAGNER. The gentleman yields back. 

The Chair now recognizes the Vice Chair of the Oversight and 

Investigations Committee, the gentleman from Colorado, Mr. Tipton, for 1 minute for an opening statement. 

Mr. TIPTON. Thank you, Chairwoman Wagner, and thank you, 

Ms. Wertheimer, for appearing before the committee today. The 

work of the inspector general at the FHFA is of crucial importance. 

With the charge to oversee high valuation of assets backed by 

taxpayer dollars and broad discretion to exercise authority, FHFA 

has the potential to cause serious harm to the American financial 

system if it derails. 

As such, the work of the inspector general to ensure that the 

FHFA is functioning properly and serves as a shrewd steward of 

taxpayer dollars comes into focus as essential. 

The witness before the committee today, Ms. Wertheimer, has 

worked diligently to study the practices of the FHFA and make recommendations to keep the agency in check. 

I look forward to her testimony and to hearing her thoughts on 

whether or not the agency has adhered to her recommendations 

and, again, I would like to thank the Chairwoman for holding the 

hearing and the witness for appearing. 

I yield back. 

Mrs. WAGNER. The gentleman from Colorado yields back. 

We now welcome our witness, Laura Wertheimer. Today’s witness, Laura Wertheimer, was confirmed as inspector general of the 

Federal Housing Finance Agency by the U.S. Senate in 2014. 

Ms. Wertheimer oversees a staff of 135 professionals who are 

dedicated to promoting economy, efficiency, and effectiveness in all 

FHFA programs and operations. 

Before arriving at the FHFA, she worked in private practice, receiving her law degree from Columbia University. 

Once the witness has finished presenting her testimony, each 

member of the subcommittee will have 5 minutes in which to ask 

questions. 

With that, the witness will now be recognized for 5 minutes to 

give an oral presentation of her testimony. 

STATEMENT OF THE HONORABLE LAURA WERTHEIMER 

Ms. WERTHEIMER. Chairman Wagner, Ranking Member Green, 

members of the subcommittee, thank you for inviting me today to 

testify regarding the work of the Office of Inspector General of the 

Federal Housing Finance Agency. 

Effective oversight makes Government better and fosters effective change. Healthy skepticism through independent reviews, both 

by inspectors general and by Congress, acts as the disinfectant of 

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sunlight to ensure more efficient and effective Government and to 

identify problems, abuses, and deficiencies. 

Because FHFA has unique responsibilities in its dual role as supervisor and conservator of Fannie Mae and Freddie Mac and as 

supervisor of the Federal Home Loan Banks, FHFA OIG’s (Office 

of Inspector General) responsibilities are broader. 

Making the right choices about what we audit, evaluate, and investigate is critical. Our work plan is risk based. It focuses on four 

major management and performances challenges facing FHFA. My 

oral remarks this morning focus on one portion of those challenges—FHFA’s supervision of Fannie Mae and Freddie Mac. 

During my tenure, FHFA OIG has issued 29 reports involving 

FHFA’s supervision program for the enterprises and 56 recommendations to address shortcomings and deficiencies that we 

found. 

FHFA agreed in full to 38 of them, or 68 percent. We found that 

the design and execution shortcomings burdened FHFA’s supervision program and we identified four recurrent themes: First, 

many FHFA supervisory standards and guidance lack the rigor of 

those issued by other Federal financial regulators; second, the flexible and prescriptive nature of many FHFA standards and guidance 

has resulted in inconsistent supervisory practices; third, where 

FHFA issued clear standards and guidance, examiners have not 

consistently followed them; and fourth, FHFA lacks adequate assurance that its supervisory resources are devoted to examining the 

highest risks of the enterprises. 

Based on our work, we have cautioned stakeholders that the safe 

and sound operation of Fannie Mae and Freddie Mac cannot be assumed because of the significant shortcomings in FHFA’s supervision program. 

While the deputy inspectors general of our audit and evaluation 

offices have recently observed some signs indicating improvements 

in the supervision program, it is too early to assess whether these 

improvements are significant and sustainable. 

Clearer standards, guidance, training, responsibility, and accountability are necessary to remediate the shortcomings and deficiencies we have identified. At this juncture, we have not identified 

sufficient sustained improvements to warrant removal of our caution. 

During my tenure as inspector general, we have issued a total 

of 85 reports to alert FHFA leadership and our stakeholders to significant issues, which include 117 recommendations to address 

identified shortcomings and deficiencies. 

Of those 117, FHFA fully agreed to 95 or, roughly, 81 percent. 

During the same period, we questioned costs of more than $104 

million. Our civil investigations during this period resulted in more 

than $22 billion in judgments and settlements for the Federal Government and our criminal investigations resulted in more than 

$784 million in fines, penalties, and the like. 

I thank this subcommittee for the opportunity to testify today. I 

am happy to answer any questions that you may have. 

Thank you. 

[Prepared statement of Ms. Wertheimer can be found on page 28 

of the Appendix.] 

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Mrs. WAGNER. The Chair thanks the witness for her opening 

statements and the Chair now recognizes herself for 5 minutes for 

questioning. 

Ms. Wertheimer, are FHFA’s statutory supervisory obligations 

similar to the obligations of the Office of Comptroller of the Currency—the OCC—the Board of Governors of the Federal Reserve 

system—the Federal Reserve—or the Federal Deposit Insurance 

Corporation—FDIC? 

Ms. WERTHEIMER. We have compared—the answer is short—yes, 

they are. 

Mrs. WAGNER. If it’s fair to compare these agencies’ requirements 

and guidance, how would you assess FHFA’s standards against the 

other Federal financial regulators? 

Ms. WERTHEIMER. We have reported on this in a number of our 

reports. Based on those reports, I would provide you this—with this 

assessment. 

They are far more flexible and far less prescriptive than the 

guidance and requirements issued by the OCC, the Federal Reserve, and the FDIC. 

Mrs. WAGNER. Is there—is there a reason why FHFA’s standards 

differ so greatly from the other Federal financial regulators? 

Ms. WERTHEIMER. FHFA maintains that the—that Fannie Mae 

and Freddie Mac—and when I—when I talk about supervisory 

standards here and the differences, I am talking largely about the 

supervisory program for the enterprises, not for the Federal Home 

Loan Banks, because the Federal Home Loan Banks—FHFA does 

have far more prescriptive guidance that is far closer to the OCC 

and the Federal Reserve. 

The guidance is different when it comes to the enterprises and 

the position of the FHFA has been that Fannie Mae and Freddie 

Mac are not depository institutions and so much of the guidance 

and requirements that the OCC and the Federal Reserve have 

issued are not applicable. 

As you know from our reports, we don’t agree with that assessment. 

Mrs. WAGNER. Nor do I. Have you—have you asked FHFA to improve its requirements and guidance? 

Ms. WERTHEIMER. In multiple reports we have recommended 

that FHFA compare its flexible requirements and standards to 

those of the OCC, the Federal Reserve, and the FDIC. 

Some of those recommendations they’ve accepted, some they have 

not. 

Mrs. WAGNER. Reading your reports, it appears FHFA has consistently rejected your recommendations to revise its requirements 

and guidance to align them with those adopted by other Federal financial regulators. 

What basis did FHFA give to reject your recommendations? 

Ms. WERTHEIMER. That it has the authority to issue its own requirements, standards, and guidance and that’s what it’s done. 

Mrs. WAGNER. Together, Fannie Mae and Freddie Mac—collectively, the enterprises—owned or guarantee about $5 trillion in 

mortgages and are among the largest financial institutions in this 

country. 

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Should either enterprise sustain losses that exceed their decreasing capital reserves, the Treasury and thus the American taxpayer 

will be on the hook for those losses. 

FHFA is statutorily required to ensure the safety and soundness 

of the enterprises without prompt and robust attention to address 

the shortcomings that you have identified. 

Can safety and soundness of the enterprises be assumed from 

FHFA’s supervisory program? 

Ms. WERTHEIMER. Well, as we cautioned, as you noted in your 

opening statement, in our December 2016 report, which was a rollup of 12 prior reports, we cautioned our stakeholders that safety 

and soundness could not be assumed because of the—just because 

there was a supervisory program unless the deficiencies in that 

program were corrected. 

Now, we are not the backup regulator for FHFA and safety—a 

decision of safety and soundness, which HERA (Housing and Economic Recovery Act) vests solely in the FHFA director, is based on 

factors other than a supervision program. 

So I have no opinion on whether they are operating in a safe and 

sound manner. I can only tell you that the supervision program 

should not allow anyone—the existence of a supervision program 

should not allow anyone to assume the enterprises are being operated in a safe and sound manner. 

Mrs. WAGNER. There you have it. I thank you. 

The Chair now recognizes the gentleman from Florida, Mr. Crist, 

for 5 minutes. 

Mr. CRIST. Thank you. I yield my time to the Ranking Member. 

Thank you, Madam Chair. 

Mr. GREEN. I thank—I thank the gentleman very much and appreciate his fine service on this committee and his sharing the time 

with me today. 

For edification purposes, I did mention Florida earlier and our 

need to engage in some sort of oversight as it relates to HUD’s 

transference of funds to the various States that have had some difficulties with the hurricanes. 

Let me please start where you were ending in terms of safety 

and soundness. You indicated that we should not assume that 

there is safety and soundness. Is that a fair statement? 

Ms. WERTHEIMER. No, I don’t think it is, sir. 

Mr. GREEN. All right. Would you correct it then? Because it’s 

been misunderstood. 

Ms. WERTHEIMER. What I have tried to convey in our reports and 

in my prior answer to Chairman Wagner is that the existence of 

a supervision program should not lead stakeholders to the conclusion that the enterprises are safe and sound because— 

Mr. GREEN. Excuse me, if I may intercede. Thank you. 

Should we assume that they are not safe and sound? 

Ms. WERTHEIMER. As I said before, we have not done sufficient— 

Mr. GREEN. Well, but here’s what you’re doing. By emphasizing 

it the way you are using the language, you’re leading to believe 

that they may not be safe and sound and that is not what you intend to do. Am I correct? 

Ms. WERTHEIMER. I respectfully disagree with you, sir. 

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Mr. GREEN. You do intend to cause the public to believe that 

they are not safe and sound? 

Ms. WERTHEIMER. No, sir. I— 

Mr. GREEN. Well, then you and I agree they are—that the public 

should not conclude from your testimony that they are not safe and 

sound. 

Ms. WERTHEIMER. That decision is vested by statute solely in the 

FHFA. 

Mr. GREEN. I do agree with you. But I don’t agree that you 

should allow the verbiage to cause conclusions that are erroneous. 

Let’s move on. 

Mr. Watt has indicated that they are not depository institutions, 

which is correct, and that does make a difference, does it not? 

Ms. WERTHEIMER. For some of the requirements and guidance 

you wouldn’t need—wouldn’t need guidance or standards that 

apply to the taking of deposits. 

Mr. GREEN. But for others you would. You said for some, but for 

others you would. 

Ms. WERTHEIMER. Right. 

Mr. GREEN. What about the others? Are they in conservatorship—the Fed, FDIC, OCC? They are not. 

Ms. WERTHEIMER. They are not. 

Mr. GREEN. They are not. So Mr. Watt has a dual purpose, if you 

will. He has more than the other agencies have as a responsibility 

and, as a result, comparing them can be difficult. But I appreciate 

your attempt at doing so. 

Now, you indicated that he accepted or—excuse me, FHFA accepted 95 of 118 recommendations? 

Ms. WERTHEIMER. Seventeen. 

Mr. GREEN. One hundred and seventeen recommendations—95 of 

117. Has it been your experience that the other regulators always 

accept 100 percent of your recommendations? 

Ms. WERTHEIMER. I don’t have experience in that, sir. I’ve only 

been the inspector general of the—for the FHFA. 

Mr. GREEN. Well, based upon your reading—you’re widely read— 

based upon your understanding of what happens at the other regulators from other intelligence that you have acquired, do the other 

regulators accept 100 percent of the recommendations all the time? 

Ms. WERTHEIMER. I don’t have a factual basis to answer that. 

Ninety-five percent is a high percentage of agreement with our recommendations. There is no question about that and it is why I 

wanted to make that point to this subcommittee. 

Mr. GREEN. Well, I greatly appreciate you making that point and 

I will welcome my visit with you a little bit later. 

I’ll yield back the balance of my time for now. 

Mrs. WAGNER. Ranking Member yields back. 

The Chair now recognizes the gentleman from Colorado, the Vice 

Chair of the Oversight and Investigations Committee, Mr. Tipton, 

for 5 minutes. 

Mr. TIPTON. Thank you, Chairman. 

Ms. Wertheimer, Section 1123 of the 2008 Housing Economic Recovery Act establishes that any new product offered by one of the 

enterprises must be examined and approved by the director of the 

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FHFA and each request to offer a new product must be subject to 

a 30-day public comment period. 

Recently, Freddie Mac announced a new pilot program referred 

to as the Integrated Mortgage Insurance, or IMAGIN, that did not 

comply with HERA’s statutorily required public comment period 

nor was it publicly approved by the FHFA. 

Have you heard any explanations from the director or other relevant employees as to why this process was not adhered to for the 

IMAGIN program? 

Ms. WERTHEIMER. That is not a program that we have examined 

and I don’t lack—I lack any basis in which to answer that question. 

Mr. TIPTON. OK. Well, thank you. 

Your office recently issued a report in March about another program, ‘‘Single Family Mortgage Underwriting Standards and 

Variances,’’ where you report that the FHFA has continuously 

failed to implement your office’s best practices, recommendations 

for full visibility into the program, Single Family Underwriting 

Standards and Risks. 

FHFA has repeatedly laid out the courses of action to your office 

and failed to follow through on these plans. Why hasn’t FHFA 

adopted those standards and what can be done about their lack of 

adherence? 

Ms. WERTHEIMER. As you know, we—that recommendation 

stemmed from a 2012 audit in which FHFA agreed that it needed 

greater visibility into the single family mortgage underwriting policies and variances because that is the foundation on which mortgages are written for single family buildings. 

And the agreement—FHA proposed to issue and did issue in 

2013 a single family process in which that review is—by which that 

review would be accomplished. 

In 2015, our Office of Compliance and Special Projects, and let 

me just say that is an office that was created during my tenure because my view, based on my experience in private practice, is that 

you need to hold an entity’s feet to the fire. 

It’s not enough for them to say they are going to do something. 

You have to go back and test whether in fact they have done it and 

whether in fact it remediates the deficiency that gave rise to the 

recommendation. 

In 2015, we went back and looked and we found that their process was not complied with by either enterprise. One enterprise submitted everything and one enterprise submitted, I believe, only 

five, and the head of the office claimed to us that she lacked visibility into the mortgage—single family mortgage underwriting 

standards for that enterprise. 

The FHFA agreed to reopen our prior recommendation and we 

were told that they would remediate it. There was a 2016 process 

that was issued. It was not followed by either enterprise. 

The FHFA then began another effort to come up with a process 

they would follow. They’ve now committed that they will fix this by 

March 31, 2018. 

I won’t know about that until we go back and fix it. It has been 

6 years since we recommended that they improve their process and 

they have not. 

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Is there a reason for that? As you know from our report, sir, 

there was a—the woman who was running the program had escalated her concerns within FHFA. 

FHFA had the authority as conservator to revise the letters of 

instruction and direct the enterprises to follow the process. It did 

not. 

Mr. TIPTON. You just described 6 years of failure to comply. You 

talked about the importance of holding their feet to the fire, as you 

noted. What are the repercussions if the enterprises are not in compliance with the recommendations from your office? 

Ms. WERTHEIMER. Well, Congress has chosen to give inspectors 

general the power of the bully pulpit and that’s about it. I have no, 

neither do any of my fellow inspectors general, have any authority 

to require agencies to do anything. 

We can recommend items that we think are practical ways to fix 

deficiencies but we are at the mercy, if you will, of the entity we 

oversee to make those changes. 

All we can do, or I believe all we can do, is to go back, as we 

have done here and call out the failure to follow those recommendations. 

Mr. TIPTON. I thank you for that. And Chairman, I would think 

it would be appropriate for us on this IMAGIN program, given 

what we have just heard, to be able to request that you would look 

into, Ms. Wertheimer, into the practices surrounding that IMAGIN 

program and the processes that led to its implementation because 

we seem to be seeing a failure to comply statutorily and to sound 

recommendations coming out as well. 

Thank you, and I yield back. 

Mrs. WAGNER. Absolutely we will make that a formal request to 

the IG. The gentleman yields back. 

The Chair now recognizes the gentleman from Michigan, Mr. 

Trott, for 5 minutes of questioning. 

Mr. TROTT. I want to thank the Chair for setting up this hearing 

this morning and thank Ms. Wertheimer for her time and for her 

work in what I am sure is a difficult job. 

The summary you gave of your written testimony was troubling, 

perhaps even shocking when you consider that we are talking 

about $5 trillion of exposure to the taxpayers. 

I want to ask a few questions about some things you said. The 

$484 million of fines and penalties—can you elaborate and give us 

some examples of what some of those penalties might have involved? 

Ms. WERTHEIMER. I misspoke, I believe, and tried to correct myself. I believe we are talking about the criminal fines and penalties. 

Mr. TROTT. Right. 

Ms. WERTHEIMER. The number was $784 since October—million 

since October 2014. Those arise—you know, we have an Office of 

Investigations. We are the law enforcement arm of FHFA. 

Unlike some agencies that have—like the Department of Homeland Security has its own law enforcement branch, FHFA does not 

and so we act as the law enforcement agent for FHFA. 

Those are criminal matters that our agents investigated, brought 

to the attention of U.S. attorneys and the Department of Justice. 

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Indictments were handed down and claims were either tried and 

brought to verdict or were pled out. 

Mr. TROTT. OK. 

Ms. WERTHEIMER. So those are just—I think what your question 

is, is the $784 million related to misconduct of any kind by FHFA— 

Mr. TROTT. Right. 

Ms. WERTHEIMER. —and the answer is it is not. 

Mr. TROTT. OK. Thank you for clarifying that. 

So when you talked about the flexible supervisory standards and 

how they are inconsistent with the private sector and some of the 

oversight of the Fed and the OCC, what’s the justification for that 

difference? 

Ms. WERTHEIMER. As our reports make clear, in any number of 

areas we have compared FHFA’s standards to those of the Federal 

Reserve for the OCC or the FDIC. 

Apart from the assertion that they are not depository institutions, the response has been we make our own rules. 

Mr. TROTT. Right. 

Ms. WERTHEIMER. We do it the way we want to do it. 

Mr. TROTT. You said that earlier in response to a question— 

Ms. WERTHEIMER. Yes. 

Mr. TROTT. —and do you think any of the reasoning is perhaps 

motivated by a political agenda, which is basically we need differential treatment for the GSEs because some believe—I am not 

among them—that the Federal Government needs to be involved to 

whatever extent necessary to make sure every American should 

own a home? Is there a political motivation behind this disparity? 

Ms. WERTHEIMER. I have not seen any evidence of that. 

Mr. TROTT. OK. 

Ms. WERTHEIMER. I think, under HERA, the agency has dual responsibilities. They may be in conflict but they are dual— 

Mr. TROTT. OK. 

Ms. WERTHEIMER. —and to ensure the safety and soundness of 

these enterprises is a requirement of HERA. 

Mr. TROTT. I was thinking a good argument could be made that 

an entity that’s in conservatorship should be subject to more rigorous standards. 

Ms. WERTHEIMER. I think it should be subject to at least the 

same standards that the Federal Reserve applies to SIFIs. 

Mr. TROTT. Right. Let’s talk about your 117 recommendations, 95 

of which you said they agree with. How many have they actually 

implemented? 

It’s one thing to agree with the recommendation and concept but 

then to take action to implement the change or recommendation is 

another thing. 

Ms. WERTHEIMER. It is. Let me give you those numbers because 

I have them. Give me a moment. 

Of the 117 recommendations we made in which they’ve agreed to 

95, we have 74 of them are closed, meaning they have submitted 

to us in this situation evidence of compliance or implementation, 

and we have determined, based on what we have received there is 

evidence of some implementation. There are 43 that remain open. 

Mr. TROTT. Great. That’s helpful. Thank you. 

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12 

Now, my friend from Texas took issue with your testimony insofar as you suggested that because of the inconsistent application of 

standards and oversight we really can’t properly assess the risk 

profile of the GSEs and whether they do pose a systemic threat. 

I think that on its face is significant just whether you’re—whether you’re suggesting they are at risk or not, isn’t that something 

that should give us pause—that we can’t properly assess where the 

GSEs are today because the standards are either unclear or not applied consistently? 

Ms. WERTHEIMER. We chose our words carefully when we wrote 

the roll-up report and with the title of safety and soundness should 

not be assumed. 

It is typical, I think, for stakeholders to believe that with a supervision program that is robust that everything is fine—that there 

is no problem with the regulated entity. 

Our point here was the supervision program exists. There are deficiencies. They haven’t been corrected. 

There may be fine reasons for Director Watt to conclude that 

they are safe and sound and that is his mandate and we have not 

gone out of our lane and rendered any opinion on that. But the supervision program, based on the 29 reports we have issued, has significant deficiencies. 

Mr. TROTT. Thank you so much. I am out of time. 

I sure hope they are safe and sound because some day Freddie 

Mac is going to need $100 million to build out its offices like 

Fannie Mae. 

Thank you for your time this morning. 

Mrs. WAGNER. The gentleman’s time has expired. 

The Chair now recognizes the gentlewoman from New York, Ms. 

Tenney, for 5 minutes. 

Ms. TENNEY. Thank you, Chairwoman Wagner, and thank you, 

Ms. Wertheimer, for coming here today. I just have a couple of 

quick concerns and one of mine is, obviously, we’re—your entity 

is—either stores, processes, or has control over $5 trillion in secondary mortgage assets. 

When it comes to personal information and the storage of that, 

especially dealing with the mortgage—the confidential information 

that you hold for people all across the Nation, it indicated that you 

have not done any supervisory activities dealing with cybersecurity 

in the 2016 examination cycle. 

Can you comment on that and tell me if that’s something in the 

works in light of Equifax and so many of the breaches we have had 

and the constant attempts on Government to breach into our sensitive security measures? 

Ms. WERTHEIMER. Look, since I’ve—cybersecurity for me has 

been a top priority. It was a top priority when I was in the private 

practice of law. It remains a top priority. 

As the inspector general and the Office of the Inspector General, 

we do not have personal information regarding the mortgages that 

are purchased or guaranteed by Fannie Mae and Freddie Mac. 

That data resides with them and FHFA is the— 

Ms. TENNEY. Can I reclaim my time? Resides with them meaning 

the banking institution or the individual holders? 

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13 

Ms. WERTHEIMER. Resides first with the originator of the loan 

and it— 

Ms. TENNEY. Right. OK. The banking institutions. 

Ms. WERTHEIMER. Then if—to the extent those mortgages are 

purchased by Fannie Mae or Freddie Mac, it resides with those two 

enterprises. 

FHFA, as conservator, can access because it has the right title 

and interest under HERA as conservator to obtain it, we do not because we are the inspector general. 

If we are looking at a particular loan program as we did recently 

with respect to the 97 percent loan programs that were begun in 

December 2014, we can ask for specific data on specific mortgages. 

We don’t have that data in our database. Now, your question, I 

think, as I understood it, went to why—FHFA’s supervisory plan 

for the 2016 supervisory cycle planned a number of supervisory activities to examine Fannie Mae’s cyber risk management practices. 

As our audit found, it concluded none of those activities. Does 

that concern me? You bet. Does it keep me up at night? You bet. 

Ms. TENNEY. Let me ask you something further on that because 

I appreciate that it is a very—it’s a big concern and I did a lot of 

mortgages in my past life as a bank attorney. 

So many of—much of this information, and we did a lot of GSEtype loans backed either by numerous organizations—a lot of this 

information actually is in the public domain registered with banking requirements by State law and Federal law where these loans 

are actually being recorded with clerks across the country, accounting clerks, particularly in New York State, where I reside. And so 

my concern is that those are requirements coming from the FHA 

and from your side as well. 

So all these documents are in the public domain with county 

clerks. Is there anything that you do to guard the consumers 

against the type—these filings that could be—provide exposure to 

cyber—to cyber or personal theft of whether it’s Social Security 

numbers, addresses, banking information that end up in a county 

clerk’s—is that something that you would guard against when 

you’re actually approving a loan or providing a secondary mortgage 

market to them? 

Ms. WERTHEIMER. Yes. So, again, we don’t do any of that. We are 

here to look at what FHFA has decided to do with that information 

as conservatory and— 

Ms. TENNEY. But wouldn’t that be an oversight function you 

would have when you go to—to make sure that these things aren’t 

disclosed and part of your whole package of providing some kind 

of protection for consumers when their personal data could end up 

online when they actually go to seek some kind of loan with a secondary mortgage loan? 

Ms. WERTHEIMER. So let me try to explain that. 

FHFA has delegated as conservator to the enterprises the responsibility for cybersecurity protection. It is up to the enterprises 

to put into place rigorous controls to either prevent the inappropriate disclosure or at least mitigate that risk. 

Ms. TENNEY. Right. If they don’t take that, what is your action 

if that’s not done? Because you’ve indicated that this—there was no 

protection in place under the 2016 guidance. 

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14 

So what would you do to protect the consumer, going forward, as 

something you would do proactively now in light of what the 2016 

showed that you didn’t do? 

Ms. WERTHEIMER. OK. So we didn’t—it’s not that we didn’t do it. 

FHFA develops a supervisory plan every year what it’s going to examine. 

What we do is go back through our audit and evaluation function 

and determine whether they were—they in fact effected their supervisory plan. 

We had two audits we issued in 2015. 

Ms. TENNEY. I think my time has expired. Can you quickly get 

to—so it covers cybersecurity risks? 

Ms. WERTHEIMER. Absolutely. 

Ms. TENNEY. OK. 

Ms. WERTHEIMER. And that’s what our 2016 audit found that in 

fact, notwithstanding the plan, they had not covered—they had not 

conducted any of the planned activities. 

We wrote about it to call it out to our stakeholders, yes, we are 

concerned. We think it is an unsafe and unsound supervisory strategy and that is what we reported. 

Ms. TENNEY. Thank you for your testimony. Thank you. 

Mrs. WAGNER. The gentlelady’s time has expired. 

The Chair now recognizes my friend and colleague, the gentleman from Missouri, for 5 minutes. 

Mr. CLEAVER. Thank you, Madam Chair. 

Ms. Wertheimer, thank you for being here. 

I work a lot with Federal Home Loan Banks and—of Des Moines 

and one of my concerns is Federal home loans and FHFA—their 

connection. 

I don’t understand—you have the—as the IG you have the responsibility, I am assuming, for both. 

If you had your druthers, would you say that—would you want 

to disconnect between the two? 

Ms. WERTHEIMER. As you know, until 2008 they were disconnected. 

Mr. CLEAVER. Yes. 

Ms. WERTHEIMER. The Federal home loan bank board supervised, 

and its predecessor, supervised the Federal Home Loan Banks and 

OFHEO supervised Fannie and Freddie. 

A decision was made by Congress to put them together. Our experience in—as the inspector general overseeing the supervision of 

the Federal Home Loan Banks by FHFA has been—that supervision has been pretty good for a number—I mean, there were a 

number of factors you can draw from our reports as to why that 

is. 

The guidance is different. I mentioned previously that the guidance and requirements that are in place for the enterprises are 

very flexible. 

That isn’t the case with the Federal Home Loan Banks. Their 

guidance and requirements tend to be far more prescriptive and 

much more similar to that of the OCC and the Federal Reserve, 

number one. 

Number two, by statute, they regulate—pardon me, the supervisors are required to examine the Federal Home Loan Banks 

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15 

every year. But our experience is, in fact, they complete that mission and issue reports of exam on time. 

They issue them to the boards of directors as their requirements 

provide and they get a certification from each board, and we have 

looked at this in our reports that normally the board has reviewed 

it but has agreed to remediate any deficiencies identified. 

In the 10 reports we have issued of the 85 that involve the Federal Home Loan Banks and many—I think it’s fair to say 6 of them 

compare Federal home loan bank examination practice to the supervision practice for the enterprises. 

We found it far more rigorous. They adhere to their standards 

and we have only had two recommendations to address deficiencies 

or shortcomings we identified, both of which were adopted by the 

FHFA and implemented. 

Mr. CLEAVER. Well— 

Ms. WERTHEIMER. So at this point in time, there’s—this is a Congressional decision but I would say to you the supervision of the 

Federal Home Loan Banks seems to be working quite well. 

Mr. CLEAVER. Well, that’s good news to me and probably Congressman Green because we were a part of putting them together, 

and as we move further and further away from the economic collapse of 2008, I think it’s worth exploring and examining many of 

the decisions we made that we believed, too, at that time to have 

been extremely important in dealing with what was going on in the 

country as in relation to housing. 

So I appreciate your—for me, that was feedback and some confirmation that the decision we made was the correct one. 

Madam Chair, I yield back the balance of my time. 

Mrs. WAGNER. The gentleman yields back. 

The Chair now recognizes the gentleman from Georgia, Mr. 

Loudermilk, for 5 minutes. 

Mr. LOUDERMILK. Thank you, Madam Chair, and thank you for 

being here, and I can—I can assure you that I am very interested 

in what you have to say and you will have time to answer the questions. 

I want to continue on with the thing that Ms. Tenney was asking 

about and predominantly I want to talk about the cybersecurity at 

the GSEs. 

As you know, they store an enormous amount of data and that 

is a big concern of mine, and I’ve said this over and over again— 

when I was in the military, worked in intelligence, and in the IT 

field, we had the principle of you don’t have to keep—you don’t to 

protect what you don’t have. 

In other words, if you don’t absolutely need the information, you 

need to get rid of it. Otherwise, you’re responsible for protecting it 

and you become more vulnerable. 

And I know that the GSEs have a tremendous amount of data 

and especially with more than $5 trillion in assets, and I was wondering if you could tell me what cybersecurity controls at the FHFA 

are in existence that maybe your office has identified as problematic? 

Ms. WERTHEIMER. I don’t think we have done the work that 

would lead me to have a basis for an opinion, to answer your question. 

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16 

Mr. LOUDERMILK. OK. 

Ms. WERTHEIMER. It is—what we have identified in reports we 

have issued is that FHFA itself has identified deficiencies in the 

systems. 

There were legacy systems. There was unsupported software. 

There were—there has been, as you know, a change in philosophy 

between Acting Director DeMarco and Director Watt. 

Director Watt has repeatedly stated that his intention is to run 

the conservatorships until Congress develops a solution to housing 

finance. 

So if you’re going to run the enterprises as opposed to wind them 

down, you need to have some kind of cybersecurity infrastructure 

that major financial institutions, others outside the conservatorship 

have, and given that money was not spent on cybersecurity—that’s 

a misstatement. 

Given that the systems were not upgraded on a repeated basis 

prior to Director Watt’s tenure, it is fair to say there has been an 

enormous emphasis on upgrading those systems and the software, 

and our reports talk about FHFA’s issuance, if you will, of—they 

are called matters requiring attention. 

They are the most significant supervisory deficiencies and 

FHFA’s oversight of the enterprise’s efforts to remediate those deficiencies. 

But to your question, I have—I am not able to answer the precise 

systems that would fully respond to your question. 

Mr. LOUDERMILK. Maybe you can answer this. Did the GSEs collect and store personally identifiable information (PII)? 

Ms. WERTHEIMER. Absolutely. 

Mr. LOUDERMILK. And that brings—a level of concern is the PII 

and the amount and the data, and do you know what type of PII 

that is included? Is it Social Security numbers, birth dates, names? 

Is it the entire gamut? 

Ms. WERTHEIMER. I think it’s all of that and more. When I first 

joined FHFA OIG as inspector general, we issued a white paper 

talking about kinds of information as well as the different ways 

that that information was vulnerable to attack and, you know, 

it’s—we just saw, I think, last weekend that two major retailers 

had more than 5 million of their charge card holders hacked. 

I mean, hacking is a fact of life today. 

Mr. LOUDERMILK. Yes. 

Ms. WERTHEIMER. So to your answer, yes, they— 

Mr. LOUDERMILK. Yes, and I— 

Ms. WERTHEIMER. —they do have a lot of PII and they retain it 

in connection with their business. 

Mr. LOUDERMILK. And just shift directions for the last few seconds we have here. Are you aware of any type of lobbying activities 

being done by Fannie and Freddie? 

Ms. WERTHEIMER. I am aware that HERA has prohibited that activity. It has not come to my attention that they are engaged in 

any lobbying on the Hill. 

Mr. LOUDERMILK. OK. Thank you. 

I yield back. 

Mrs. WAGNER. The gentleman yields back. 

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The Chair now recognizes the gentlelady from Ohio, Mrs. Beatty, 

for 5 minutes. 

Mrs. BEATTY. Thank you, Madam Chairwoman, and to our Ranking Member, and thank you, Madam Inspector General, for your 

testimony and for your work and for being here today. 

In your report—one of your reports you talked about the spending of the $171 million by Fannie Mae in its Washington, D.C. 

headquarters. 

I can remember when Director Watt was here. Many of my colleagues also talked about that and asked questions about it, and 

as I recall there was a lot of time spent comparing it to reports of 

health and wellness for staff to be able to feel secure, to be able 

to walk, to not have to go outside and around to use the pathway. 

And since then, I did do some reviewing of other—whether it was 

private sector facilities to see how employees felt about it and, certainly, I think it is not only the quantity of what we expand or put 

in something but it is the quality of the outcome as well. 

So I just wanted to interject that. Additionally, you questioned 

the comps, I believe, used by the FHFA to justify its spending. I 

was really fortunate enough to be speaking at an event with the 

Ohio Association of Realtors at their annual legislative conference 

in Columbus because we are celebrating the 50th anniversary of 

the Fair Housing Act. 

And while I was there to speak about the passage of that historic 

bill that was passed in 1968, it made me think about how realtors 

use comps in real estate business when I read your report and your 

testimony. 

In your testimony, you question the cost associated with Fannie 

Mae’s new office spaces in Washington and in Dallas, Texas. 

You also questioned the standards or the comps used by the 

FHFA to justify some of these costs, and certainly, the standards 

or the comps used by FHFA for justification of some of those costs 

was against the upgrades at major financial institutions and larger 

public sector agencies. 

To me, this seems to be a reasonable comparison, and while we 

have heard that Fannie Mae—I’ll get this out of the way—is in conservatorship, it seems to me that it is a reasonable comparison because Fannie Mae is a large financial institution with $110 billion 

revenue in 2017 and it’s controlled by a large public sector agency, 

FHFA. 

So could you share with me why did your report question the 

standards used? 

Ms. WERTHEIMER. Our report—all inspectors general reports 

should, according to our own professional standards, contain four 

elements: Condition, criteria, cause, and effect. 

Here, the condition was the build-out—what was being spent on 

the build-out and the criteria was not a criteria that what 

JPMorgan Chase or Bank of America would spend. 

The criteria set by this Congress and HERA, when an entity— 

a regulated entity by the FHFA is put into conservatorship, the 

conservator has an obligation to preserve and conserve. 

Now, what does that mean? In our first report in May 2016, we 

set out our view of what that meant—what are the upgrades, if you 

will, that Fannie Mae has sought, what are their efficiencies, do 

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the efficiencies warrant the cost, and is the cost appropriate for an 

entity in conservatorship with an uncertain future in a building it 

does not own. That is how we understood preserve and conserve. 

It its response, FHFA didn’t take issue with that standard. In 

fact, Director Watt in his response explained, well, there may be 

short-term costs to the spiral staircases but, over time, there are 

greater efficiencies. 

He offered the same with the walkways and said, yes, of course 

we are going to consider cost efficiencies and whether it’s warranted for an entity in conservatorship. 

We went back a year later to see what had happened and what 

we found was we spoke to the oversight committee within FHFA— 

a committee that was put together in response to a recommendation, as well as the expert—and what we were told was by each 

person we interviewed—and we report that in our September 2017 

report—they didn’t consider cost efficiencies. 

They didn’t consider whether it was warranted for an entity in 

conservatorship with an uncertain future in a rental building to 

spend that kind of money. 

And for that reason, we came to the view that the standard 

wasn’t met and we heard something different, and FHFA’s response was, well, that we did consider cost efficiencies. That was 

not what our field work showed and that’s what we reported. 

Mrs. BEATTY. Thank you. 

Madam Chairman, in light of us not having enough members 

here, may I have an additional minute to— 

Mrs. WAGNER. Without objection. 

Mrs. BEATTY. Thank you. Let me just say thank you for that and 

we will continue probably to have discussions on that and the quality of it and how narrowly focused sometimes we are when we are 

trying to make those determinations and we know that there is not 

another building or entity like this. So it does make it very difficult 

from where I sit. 

But last, I want to thank you and I also want to thank you for 

sharing with us the number of responses that Director Watt did 

provide and am pleased that you stated that that is the majority 

of being able to meet the standards and to meet 95 out of 100 and 

some. 

I want to thank both of you, and I’d also, Madam Chair, would 

just like to conclude, because we do spend a lot of time here and 

we are fortunate to have a Chairwoman of Oversight that allows 

us to get engaged. 

So maybe one of the things that we can continue to work on is 

for Congress to be more engaged in the actual housing finance reform, and I think that’s one of the things that Director Watt and 

his just maintaining it—I think he was waiting on Congress to be 

more engaged. 

So I think I’d like to say to Director Watt, who was one of us 

and served admirably here on this committee, that for the things 

he’s been able to accomplish over there has been short of miraculous. It’s a new entity. You, being relatively new, the only second 

director there, I can imagine to have to always find things that are 

thought wrong can be very challenging. So I’d like to thank you for 

your service and thank you, Madam Chairwoman. 

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19 

Mrs. WAGNER. I thank you. 

Ms. WERTHEIMER. Might I respond to one thing? We don’t start 

our work with an objective that says prove that FHFA failed to do 

X. We identify risk areas. We get input from our stakeholders. 

Whether it’s FHFA employees, Members of Congress, reading reports issued by think tanks, we come up with project ideas. We 

then do the field work. 

We report what we find. I would only direct your attention to, 

for example, the two audits we recently issued on the 97 percent 

loan to value program. 

When that program was tried as a pilot program under Director 

Watt’s leadership there was a lot of criticism about that program, 

that it was opening the credit box unduly, that it was going to 

cause—that it was putting taxpayers at risk because of the opening 

of the credit box. 

What we found and what we reported was a well over 97 percent 

rate of compliance by the originating banks with the requirements 

that FHFA established in December 2014. 

So we are not only here to find and report bad news. We are here 

to examine risk areas and report what we find, good or bad. 

Mrs. BEATTY. Thank you. That’s a good note to end on, that there 

were some very good things found and I really appreciate your adding that. 

Thank you. 

Mrs. WAGNER. The gentlelady from Ohio’s time has expired and 

I thank her for her comments, and I will say that I plan on, in my 

close, talking about perhaps more ways, as you well put, Mrs. 

Beatty, for this committee to be more and Congress to be more involved in the process. 

Moving on, the Chair now recognizes the gentleman from Indiana, Mr. Hollingsworth, for 5 minutes. 

Mr. HOLLINGSWORTH. Well, happy Thursday. I appreciate you 

being here and have to say that I’ve heard from so many people, 

both sides of the aisle, both staffs, how great, how diligent, how 

thoughtful you are at every turn and really appreciate that. 

And I can assure you my constituents, Hoosiers back home, rest 

well at night knowing that someone is watching all aspects of at 

least one area of Government for them. 

I did want to talk about new products and some of the new products that are currently being offered and some real concerns about 

those from two aspects. 

The first aspect is the potential for them to transition from secondary market focus, secondary market activity, to primary market 

activity. 

I know that the IMAGIN product has been brought up and I 

know that you don’t want to address that directly. But I just want 

to talk about the general big concept here of making sure that 

what I think is if not written into the specific language of the charter, certainly the spirit of the charter, that these two entities would 

operate in the secondary market and are responsible for developing 

a robust secondary market and that these products may be 

transitioning to the primary market. 

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And I think the history of Government-conferred advantaged 

companies entering into environments where others don’t have 

those same advantages is one wrought with failure and problems. 

When you drop a lion onto the Serengeti with a bunch of antelope you don’t get more antelope and more diverse species. You get 

a fatter lion. 

And so I wanted to make sure that some oversight was being 

provided to—that they are not transitioning from secondary to primary market, and some of the newer products that are being offered are an attempt to do so or, in your mind, aren’t beginning 

that process of crossing that bright line that we have had for the 

last 50 years? 

Ms. WERTHEIMER. We haven’t done the work for me to render an 

opinion on that. I certainly have heard concerns from two members 

of the committee about that and we will factor that into our work 

plan. 

Mr. HOLLINGSWORTH. OK. But it is something, I guess, from a 

broader perspective that is worth watching, would you say? 

Ms. WERTHEIMER. Absolutely. 

Mr. HOLLINGSWORTH. Great. Thank you. 

Ms. WERTHEIMER. You know, we have a lot of—we do a lot of 

watching at the— 

Mr. HOLLINGSWORTH. I have no doubt. I have no doubt. It is a 

big purview to watch. 

But there are a lot of things that you could watch in small ways 

in making sure that every taxpayer dollar is spent as effectively, 

as efficiently as possible. 

But this could be a really large problem down the road. It could 

create really catastrophic results for taxpayer losses in companies 

having these advantages and operating in an environment where 

others don’t, especially when that same company gets to set the 

standards for others that might compete with that primary—in 

that primary market. I think that’s really important. 

Ms. WERTHEIMER. No, and I hear that. We have established an 

Office of Risk Analysis— 

Mr. HOLLINGSWORTH. Great. 

Ms. WERTHEIMER. —precisely to monitor emerging risks because 

the first inspector general, Steven Linick, who was very helpful in 

sharing his information about the FHFA and about the OIG with 

me, said, this IG is unlike many IGs. 

You’re not doing autopsies on contracts that have already been 

led and figuring out whether there is any waste, fraud, or abuse. 

You’re operating on a live patient without a lot of anesthetic. 

Mr. HOLLINGSWORTH. Yes. 

Ms. WERTHEIMER. So they are open institutions. When we speak, 

we have to be measured in what we say. 

Mr. HOLLINGSWORTH. Yes. 

Ms. WERTHEIMER. But we cannot close our eyes to emerging risks 

and just, oh my goodness, this catastrophe is upon us. And so we 

have, in the last semi-annual period, issued three white papers 

talking about adjustable rate mortgages, which are on the rise at 

custodial institutions and the like and we continue to—I mean, this 

is an area of emerging risk. We need to look at it. 

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Mr. HOLLINGSWORTH. And I love that you’re focused on it because, ultimately, we do have the economic tailwinds today, and 

that is the moment when risk gets built, that risk comes to fruition, and comes to losses at times of economic recession. 

Ms. WERTHEIMER. Absolutely. 

Mr. HOLLINGSWORTH. The last thing I wanted to talk about—the 

second point with regard to this—is you said an open institution 

and one of the concerns that many have raised about some of the 

new products that are being offered is that they are being offered 

without appropriate public comment period beforehand and there is 

not the same level of transparency that we had come to expect or 

that taxpayers demand or are written into the previous act. 

Do you have any comment? I think there are four new products 

that are now being offered without having gone through that 30- 

day public comment period that’s required. 

Ms. WERTHEIMER. I don’t. I am sorry. 

Mr. HOLLINGSWORTH. Well, that you were watching is important 

in making sure that taxpayers not only are being looked out for on 

present and current expenses but also for risk that may be building 

or— 

Ms. WERTHEIMER. Absolutely. 

Mr. HOLLINGSWORTH. —the emergence of risk in the system or 

just the gradual grabbing of more and more purview by these institutions. That’s what got us into the problem before and I want to 

make sure that we don’t have that same problem 10, 15, 5 years 

from now. 

Ms. WERTHEIMER. I do, too, and it’s why this Office of Risk Analysis is critical for us as well as the fact that we have—there have 

been many changes we have put into place because my view is financial crisis—if you were a student of housing finance you may 

have been predicting it in 2004 and 2005. Most Americans, including myself, were sort of hit upside the head when it started and 

how fast it escalated. 

We don’t have the luxury of taking 18 to 20 months to do an 

audit or an evaluation. We have to look at something quickly, thoroughly, and report our findings, because if there are problems we 

need to identify them, propose recommendations, and alert our 

stakeholders. 

Mr. HOLLINGSWORTH. Well, this is an important area that certainly I and, as you alluded to, several other members are very concerned about and would love to have your continued watchful eye 

on that. 

And as I started with, I’ve heard from everybody just how diligent and thoughtful you are. You have certainly resoundingly reinforced that opinion today, and I appreciate you being here. 

Ms. WERTHEIMER. Thank you very much. 

Mrs. WAGNER. The gentleman’s time has expired. 

The Chair now recognizes the Ranking Member, the gentleman 

from Texas, Mr. Green, for 5 minutes. 

Mr. GREEN. Thank you, Madam Chair. 

As I indicated earlier, I have some news articles that I’d like to 

place into the record, one styled, ‘‘CFPB May Fine Wells Fargo as 

Much as a Billion Dollars’’—that’s from MarketWatch—another 

from Reuters Exclusive—‘‘U.S. Watchdog Seeks Record Find 

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Against Wells Fargo for Abuses’’—another—this is from the American Banker—‘‘CFPB’s Mulvaney Strips His Fair Lending Office of 

Enforcement Powers.’’ 

Mrs. WAGNER. Without objection. 

Mr. GREEN. Thank you, Madam Chair. 

Let’s quickly go to the fines—the criminal fines. Who were these 

fines levied against, please, ma’am—Madam? 

Ms. WERTHEIMER. So they are all over the place. Some were 

against institutions. Some are against individuals. 

Mr. GREEN. Were any levied against FHFA? 

Ms. WERTHEIMER. Not—to the best of my knowledge, they were 

not. 

Mr. GREEN. OK. When you say to the best of your knowledge, 

based on the empirical evidence that you have, in other words. Is 

that correct? 

Ms. WERTHEIMER. I am not aware of any that were levied on— 

criminal fines levied on FHFA. I am just not aware of any during 

my tenure. 

Mr. GREEN. Well, if there were some, you would be aware, 

wouldn’t you? 

Ms. WERTHEIMER. I surely would hope so. 

Mr. GREEN. OK. Well, why do you—why do you choose to engage 

in this sophistry to the extent that you leave the notion that there 

may be something shady there but I don’t know about it? 

FHFA hasn’t had criminal fines levied against it, has it? It has 

not. Let’s move on. 

You indicate on page 11 of your statement to the committee—the 

full statement—page 11, first paragraph, last sentence. You indicate that, ‘‘The work that we do does not provide us with a sufficient basis on which to make such a safety and soundness assessment for either enterprise.’’ 

You’re talking about safety and soundness, and you indicate that 

your work doesn’t provide you a basis for making an assessment 

of safety and soundness. 

Is that a fair statement of what you stated? 

Ms. WERTHEIMER. That is correct. 

Mr. GREEN. OK. So if this is a fair statement of what you stated, 

why would you go on to make the statement that safety and soundness should not be assumed? 

Now, let me tell you why I am pursuing this. In this area, your 

diction has to be superb and it has to be superb because markets 

move on safety and soundness. 

We would not want the public to conclude that there may be a 

safety and soundness issue that you are aware of but you’re not reporting. 

You have no evidence of there not being—of there being something other than safety and soundness at FHFA. So I want to clarify this with you because you’ve stated it two ways—this language 

two ways in your report. 

In one, you use the language safety and soundness should not be 

assumed. But then in another, you indicate that your caution, however, should not be understood as our having concluded that the 

enterprises are not being operated in a safe and sound manner. 

Both of those are your statements. 

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Ms. WERTHEIMER. Correct. 

Mr. GREEN. OK. So can we say to the public, the public that can 

cause markets to move based upon words that you articulate—can 

we say to the public that you are not here today to imply that 

FHFA is something other than safe and sound? 

Ms. WERTHEIMER. Well, FHFA is the conservator of these enterprises. It is also the supervisor. It’s charged under HERA with 

making the safety and soundness decision for these enterprises and 

for the Federal Home Loan Banks. 

It’s also charged with reporting that to the Congress every year. 

What we are saying is the public often assumes that the existence 

of a supervision program, that someone’s on the beat, means the 

entities are safe and sound. 

Mr. GREEN. Are you—are you concluding that the safety and 

soundness report from the authorized agent to produce such a report is incorrect? 

Ms. WERTHEIMER. I think I am clear that we are not saying that. 

Mr. GREEN. OK. So then you walked into this when you decided 

you were going to make a commentary about the safety and soundness when that really is not within the purview of your responsibilities. You don’t make safety and soundness decisions about FHFA. 

Ms. WERTHEIMER. And we did—sir, we never said we did. 

Mr. GREEN. All right. Well, I appreciate your being here today 

and thank you for your testimony. 

Mrs. WAGNER. The Ranking Member’s time has expired. 

The Chair now recognizes the gentleman from Tennessee, Mr. 

Kustoff, for 5 minutes. 

Mr. KUSTOFF. Thank you, Madam Chair, and I thank the witness 

for appearing this morning. We appreciate it. 

Your office prepared a number of reports describing the cost of 

building renovations for Fannie Mae. If you could, could you walk 

us through some of the improvements your office identified that 

you thought were noteworthy where there are costs and expenditures? 

Ms. WERTHEIMER. I’d be happy to do that. 

We, as our first report indicated, received a whistleblower complaint on this. We set out, as we do with all whistleblower complaints—we triage them because we can’t—we don’t have the bandwidth to look at each and every complaint. 

We decided that this complaint merited an administrative inquiry and we went about looking to figure this out. What we 

learned was that the landlord, Carr Properties, had given Fannie 

Mae a very generous tenant improvement allowance by the terms 

of this area—$120 a square foot. 

And so what we were looking to see was OK, are they spending 

within the tenant improvement allowance, which would cost them 

nothing, or were they in excess of the tenant improvement allowance. 

At that time, FHFA did not have an expert. Fannie Mae had retained an expert. Fannie Mae’s expert told us that in his or its, 

pardon me, experience $164 a square foot was what you could— 

what a—Class A is the best space you can get, and this is new 

space, but what a—what you would expect a tenant moving into 

Class A space to spend on improvements and the like. 

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We then looked at what the projections were, and to be clear, 

they were only projections at the time, of what Fannie Mae 

planned to spend. 

At that time, they were roughly $252 a square foot, which was 

well in excess of what Fannie Mae’s own expert said was customary—not necessary but customary. 

We began asking questions. The gentleman at FHFA who was in 

charge of the oversight had told our investigators, golly, we have 

no exposure here—we are capped at $120 a square foot, and if 

Fannie Mae was going to exceed that, why, they would have told 

us that. 

Well, at that point, their own budget showed $252. I believe it 

may be $253 a square foot. We, in the course of our looking over 

8 weeks, the budget went down to $235 a square foot. 

We issued the management alert in June 2016 in which we said, 

look, you’re in conservatorship, Fannie Mae. You, FHFA, while you 

delegated the build-out costs to Fannie Mae, you—they are your 

agent. 

You’re ultimately, as conservator, responsible for that. The statutory standards set by Congress is preserve and conserve. Whatever 

that means it cannot mean $252 a square foot when law firms, lobbying shops, et cetera, are paying $164 a square foot. 

And we identified what our view of what conserve and preserve 

meant, and I identified that earlier—what are the efficiencies, do 

they warrant the cost, are they appropriate for an entity in conservatorship in a space it does not own and it may not be existence 

for 15 years. 

So while I certainly appreciate employees enjoying open spaces 

and crystal walkways, et cetera, I can tell you I practiced law in 

a firm where the carpet was coming up, where the mail chute was 

jammed, and I had the best time of my life there. We didn’t need 

to have luxuries in order to practice law well. 

But be that as it may, Director Watt agreed that our recommendations and standard would enhance the oversight. And so 

we came back a year later because the last thing I wanted or anyone in my office wanted was for the building to open and for the 

Congress to say, well, where was that IG. 

So we went back—what’s gone on. Well, we interviewed the committee that was responsible. We interviewed the expert who was 

retained. 

What did we find? Well, we have a cafeteria that’s being put in 

which the experts said would be underutilized. We have a third 

generator which was put in. The experts said, well, Fannie wanted 

it. 

We have a broadcast studio—Fannie wanted it. We have finishes, 

lunch huts, pergolas. It is a—it is, as the expert wrote in the report, it felt that the standard for the—for the baseline, if you will, 

for Washington, D.C., had gone up from $164 to $175. I am leaving 

out the change. 

So it only looked at improvements and upgrades above $175 and that’s where that $32 million comes from. It’s above and beyond 

the $175 a square foot. 

Mr. KUSTOFF. Thank you very much. My time has expired. 

Mrs. WAGNER. The gentleman’s time has expired. 

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Without seeing any further members to question, let me close by 

saying that today’s hearing has raised important questions that are 

extremely concerning. 

It appears that statutory discretion under HERA has led to a 

lack of oversight at the FHFA, which, in turn, has led to objectively 

bad performance as measured by the independent and nonpartisan 

IG. 

I hope my friends on the other side of the aisle see this and will 

work with us on reforming HERA. I also have to note that our concerns are exacerbated by the fact that Director Watt recently failed 

to substantially comply with the committee records request seeking 

to further explore the important issues raised by the IG—Director 

Watt’s statutory discretion and perhaps, more importantly, Director Watt’s failure to fully implement many of Ms. Wertheimer’s 

common sense recommendations. Simply put, I will not allow failure to comply with many records requests to stand. 

Again, I want to thank Ms. Wertheimer for her testimony today 

and without objection, all members— 

Mr. GREEN. Ms.—Madam Chair, objection. I have a question. 

I would like unanimous consent to place a response to your statement in the record, if that can be done without objection. 

Mrs. WAGNER. Without objection. 

Mr. GREEN. Thank you. 

Mrs. WAGNER. Again, I want to thank Ms. Wertheimer for her 

testimony today. 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 is now adjourned. 

[Whereupon, at 11:25 a.m., the subcommittee was adjourned.] 

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