Fannie Mae continues to face a lot of problems as it rebuilds its accounting systems and internal controls, according to the Office of Federal House Enterprise Oversight's annual report to Congress."Overall, Fannie Mae's condition warrants significant supervisory concern," OFHEO says in its 2004 annual report. The report maintains that operations risk management for transactions, accounting, and financial statements is "weak but improving." However OFHEO and Fannie's new management continue to discover new deficiencies in operations controls. Fannie is preparing to restate its earnings for 2001, 2002, 2003, and the first half of 2004. (The government-sponsored enterprise has not issued a financial report since the second quarter.) While the mortgage giant remains profitable, the OFHEO report says the rapid earnings growth that Fannie reported in previous years was not maintained in 2004. "Earnings in 2005 will likely be affected by asset reductions caused by the need to build capital and higher expenses from the restatement effort and systems upgrades," the report says.

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