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The Office of Federal Housing Enterprise Oversight released its annual report to Congress on Tuesday. Some harsh judgment reserved for Fannie:

… significant risks remain in that Fannie Mae (FNM) is currently not producing timely quarterly and annual financial reports. The current financial reporting environment has proven stable enough to produce financial statements related to the restatement, but the Enterprise is not currently under the tight reporting timeframes that would be required of a timely filer, and therefore it remains to be seen if the processes it is developing are robust enough to handle the task.

Freddie Mac (FRE) didn’t fare much better:

The Enterprise still faces the challenge of becoming a registrant with the Securities and Exchange Commission (SEC). Currently, the Enterprise is not subject to the reporting schedules that would be expected of a timely filer, and therefore management must ensure that processes being developed are robust enough to handle this task.

Freddie expects to have quarterly statements produced in 2007; Fannie hopes to get restated 2005 and 2006 financials completed by the second half of 2007. A lot has changed in the accounting world while these two giants have struggled to get their financial houses in order: there are a lot more standards that deal with fair value than when troubles began with their inadequate accounting systems and controls.

As the report properly points out, there were three FASB standards issued in just 2006 that had fair value reporting implications: Statement 155, “Accounting for Certain Hybrid Financial Instruments,” Statement 156, “Accounting for Servicing of Financial Assets,” and Statement 157, “Fair Value Measurements.”

Making sure that new accounting systems are established that will account for new fair value reporting standards while fixing broken reporting has to be a monstrous challenge at these two Goliaths. It must be something like changing a tire on a car while driving it at 60 mph. These companies didn’t create their problems overnight; it took them both something like a decade to get into their current situations. So it’s not too surprising to see the restatement and renovation take so long.

FNM and FRE 1-yr chart

Source: Fannie Mae and Freddie Mac: OFHEO Releases Harsh Judgments