Fannie Mae and Freddie Mac have made considerable progress towards achieving financial stability, but more progress needs to be made, according to the Office of Federal Housing Enterprise Oversight's annual report to Congress released on Tuesday.

"While they have made progress in fixing many of their systems, internal controls and risk management problems, they still have much work to do, especially with the continuing challenges of today's mortgage market," OFHEO Director James Lockhart said.

The report also noted an ongoing "significant supervisory concern" given the current volatility and uncertainty surrounding the U.S. mortgage market and renewed its calls for a stronger regulator of the system.

By Erik Kevin Franco and edited by Stephen Huebl