Fannie Mae (FNM) and Freddie Mac (FRE) remain "critical concerns" as they continue to face the very challenges that led them into conservatorship last year, federal regulators said today. The two mortgage giants still struggle to build staff and correct operational and credit management weaknesses, according to the FHFA's annual examination report. And large first-quarter losses sound warning of even more challenges to come as the housing market weakens further. Since late 2008, the two entities have collectively required around $60bn in government capital in order to adequately support the mortgage market. But despite significant trials over the past year, FHFA says the Enterprises did make strides in fulfilling their key mission of providing stability and liquidity to the conventional conforming loan market and keeping people in their homes through loan modifications and workouts. Their support of the mortgage market grew by 5.6% in 2008 versus 14% growth in 2007, to a total of $5.2trn. "If we had not put the Enterprises in conservatorship, we believe the downward spiral in the economy would have accelerated, because the Enterprises would have had to pull back dramatically from the housing market," FHFA Director James Lockhart said. Lockhart, along with Treasury Secretary Timothy Geithner and other members of the oversight board emphasized, however, government conservatorship cannot be a permanent arrangement. But before the current model abates, the housing market will likely have to make a recovery. The Obama Administration's efforts to push a higher volume of refinancings can help the companies improve their credit positions, the report says, though Fannie Mae this month also said implementing the plans could make it more difficult to return to profitability. The oversight board also said in its report Federal Home Loan Banks continue to play a critical role in providing liquidity to their members through advances, which peaked at $1trn in October. "The FHLBanks' advance business continues to be a sound business with no credit losses," the report read. Read the full report here. Write to Kelly Curran.