In its 2007 Report to Congress, the Office of Federal Housing Enterprise Oversight said Tuesday that both GSEs “remain a significant supervisory concern,” alluding to the potential risks posed by the large mortgage holdings at both Fannie Mae and Freddie Mac. “While both Enterprises made progress in correcting their problems, especially in systems, controls and financial reporting, it has taken much more time and money to correct than the GSEs or OFHEO expected,â€? said OFHEO driector James Lockhart. “A key indicator of a successful remediation will be the timely filing of annual and quarterly financial statements by each company with a clean audit opinion based on a controls-based audit. I am pleased to report that both companies are working hard to achieve this goal, but they still have much to do.â€? Lockhart lauded the recent passage of H.R. 1427, a bi-partisan GSE reform bill that is now awaiting Senate debate, and said that legislative reform remains high on the GSE regulator’s agenda for 2007.

“This year will be one of challenges for the housing markets,” Lockhart said in his letter to Congressional legislators that accompanied the full report. “OFHEO is working with the Enterprises to provide guidance on subprime and non-traditional mortgages. It should also be a year of significant progress as Fannie Mae and Freddie Mac accelerate their remediation programs.” While much of the industry’s focus has shifted towards troubles in the subprime market as of late, OFHEO’s report to Congress recounts the findings in its Special Examination of Fannie Mae, completed during 2006. Industry sources say that, if anything, they hope Senate legislators haven’t lost some of their earlier zeal. “Watching news headlines now, you’d barely remember that it wasn’t so long ago that Fannie and Freddie were all the rage in terms of regulatory focus,” said one source. “If the GSE reform issue loses the steam it had earlier because of trouble in subprime lending markets, it will be an event the entire industry could later come to regret.”