Fannie Mae and Freddie Mac have made progress in improving their corporate governance structure and managing credit risk, but they still face significant headwinds, according to the FHFA’s annual report to Congress. The report noted that the prospect of negative net worth in future quarters for Fannie might be more likely than in recent periods thanks to a reduction in income from Fannie’s shrinking investment portfolio. Also income from loss reserves and legal settlements is diminishing. While the report noted that Fannie has significant initiatives underway to improve its governance, risk management and systems infrastructure, it said the magnitude of the projects would expose the enterprise’s operations to heightened risk.