UPDATE 2-Freddie Mac Oct portfolio down, delinquencies jump

(Adds background, details from October report)

NEW YORK Nov 24 (Reuters) - Freddie Mac FRE.P FRE.N, the second-largest U.S. home funding company, on Tuesday said its mortgage investment portfolio shrank by a 21.6 percent yearly rate in October, while delinquencies accelerated on loans it guarantees.

The portfolio decreased to $770.1 billion in October from $784.2 billion the previous month, for an annualized 5.2 percent drop year to date, the McLean, Virginia-based company said in its monthly volume summary.

The portfolio size, however, increased from $763.7 billion in October 2008.

Delinquencies, which increase stress on the company's capital, rose to 3.54 percent of its book of business in October from 3.33 percent in September and 1.34 percent in October 2008.

The multifamily delinquency rate accelerated slightly in October to 0.12 percent from 0.11 percent in September. A year earlier it was 0.01 percent.

Freddie Mac in early November posted a loss of $5 billion in the third quarter and predicted it would need more government support.

Increases in the value of securities Freddie Mac held over the period helped buoy its net worth, however, erasing its need to tap government funds for a second straight quarter to stay solvent.

Freddie Mac said refinance-loan purchase volume was $18.0 billion in October, down from September's $21.4 billion.

Activity peaked earlier this year, with March's $52 billion its largest refinance month since 2003.

The net amount of mortgage-related investments portfolio mortgage purchase agreements entered into during October totaled $1.7 billion, down from the $4.6 billion in September.

The company's total mortgage portfolio increased at a 0.7 percent annualized rate in October to $2.244 trillion, for an annualized 2.0 percent increase year to date.

In early September 2008, the U.S. government seized control of Freddie Mac and its larger sibling, Fannie Mae FNM.P FNM.N, amid heightened worries about shrinking capital at the congressionally chartered companies.

The current agreement with the U.S. Treasury has the retained portfolio at Fannie Mae and Freddie Mac capped at $900 billion until Dec. 31, when they are to start declining by 10 percent per year until they reach $250 billion.

The government has been relying heavily on Fannie Mae and Freddie Mac in its efforts to stimulate the battered U.S. housing market by buying more mortgage loans, easing refinancing and helping homeowners avoid foreclosure.

After the worst downturn since the Great Depression, the housing market has shown signs of stabilization. Home price declines have moderated in many regions of the country and, according to some indexes, prices in some regions have risen.

U.S. home prices rose for the fifth straight month and posted the second quarterly increase, but the pace of appreciation in September slowed and was less than expected, according to Standard & Poor's/Case-Shiller indexes on Tuesday. For details see [ID:nNYS007561] (Reporting by Julie Haviv) ((Reuters Messaging:julie.haviv.reuters.com@reuters.net; email: julie.haviv@thomsonreuters.com; Tel: +1-646 223 -6153))