Hard to see how FHFA’s Watt survives harassment allegations

The mortgage industry and Washington were rocked Friday by news that Federal Housing Finance Agency Director Mel Watt has been accused by an agency employee of sexual harassment.

Watt is slated to leave the FHFA in January after serving since 2014 as the top regulator and conservator of Fannie Mae and Freddie Mac.

But that exit could be accelerated if the allegations laid out by Politico prove true.

The paper obtained transcripts of reported conversations between Watt and the employee, whose name was withheld. In those reputed conversations, Watt appears to be suggesting a relationship with the employee.

“Well, you probably want to know what I wanted to talk to you about,” Watt said, according to Politico. “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 of friendship. So, the exercise here is to find out which one exists here.”

In a separate conversation, according to Politico, Watt notices a tattoo on the employee’s ankle and asks her, “If I kissed that one would it lead to more?”

The employee’s lawyer, Diane Seltzer Torre, confirmed to American Banker that an Equal Employment Opportunity complaint had been filed against Watt. The FHFA confirmed an investigation is underway.

Through the FHFA, Watt issued a response to the report, claiming the leaks of information were “intended to embarrass or to lead to an unfounded or political conclusion.”

“However, I am confident that the investigation currently in progress will confirm that I have not done anything contrary to law,” he said. “I will have no further comment while the investigation is in progress."

Watt did not confirm or deny whether he made those suggestive comments to an employee, instead emphasizing that any actions he took were not illegal.

Legality aside, if Watt made such comments, it may be enough to force him out before his term is up.

As the head of an independent agency, Watt can only be removed “for cause” by the president, but the statute is vague on the definition, and these allegations could qualify.

Whether he chooses to leave or is forced out, many observers have suggested that Watt’s days at the agency are numbered.

“The transition timeline is likely to be expedited,” said Isaac Boltansky, director of policy research for Compass Point Research & Trading.

The administration has already been eyeing a Watt replacement, and several candidates have been publicly discussed. The president could either allow one of Watt’s deputies to temporarily run the agency if he stepped aside, or appoint an interim head under the Federal Vacancies Reform Act, which allows a Senate-confirmed official to temporarily serve as director. Mick Mulvaney, the head of the Office of Management and Budget, was appointed interim director of the Consumer Financial Protection Bureau late last year after Richard Cordray resigned to run for Ohio governor. Either way, a full-time director of the FHFA may be some time away if Watt leaves early.

“Even at warp speed it will take months to nominate and confirm an FHFA director,” said Boltansky.

Ultimately, however, whether Watt leaves now or in January, it won’t dramatically impact the status quo, though an earlier departure could make what was expected to be a smooth transition more abrupt. Watt has signaled he is unlikely to seek major changes to the government-sponsored enterprises in the remaining months of his tenure. Congress, meanwhile, remains stalled over what to do with Fannie and Freddie.

Most likely, a new direction for the GSEs will come from the next FHFA director. And we may be meeting that person much sooner than originally planned.

Victoria Finkle contributed to this article.

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