UPDATE 2-Freddie sells small REMIC deal, record US share

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NEW YORK, Oct 16 (Reuters) - Freddie Mac (FRE.N), the No. 2 U.S. home funding company, said on Tuesday it sold $500 million in reference Real Estate Mortgage Investment Conduit securities, or REMICs, its smallest issue since it began selling this type of security in April 2005.

The size was half of the $1 billion minimum that Freddie Mac had committed to sell in new reference REMIC deals when it announced its 2007 funding calendar.

"Traditionally, Freddie Mac's reference REMIC securities have been at least $1 billion in size. In consultation with our lead underwriters, we feel the market is best served with a smaller offering at this time," Mark Hanson, vice president of mortgage funding at Freddie Mac said.

The new issue was sold two days before the expected pricing date due to strong demand, a Freddie Mac spokesman said.

The REMICs were priced at 99.9765 to yield 5.479 percent, or 133 basis points over the interpolated Treasury curve, with a final maturity of Oct. 15, 2014. Settlement is Oct. 23.

Freddie Mac said 88 percent of the REMICs were sold in the United States, a record high, with Asia purchasing 12 percent. The prior record share for domestic purchases was 78 percent of a $2 billion reference REMIC sold in May 2006.

Banks bought 48 percent, investment managers 35 percent, insurance and pension funds bought 13 percent, hedge funds took 3 percent and 1 percent went to other investors.

This is Freddie Mac's first sale of REMICs since June. The agency's 2007 debt calendar designates monthly issuance weeks which it can opt to use for new reference REMIC offerings.

It has sold about $5.5 billion of reference REMICs so far this year. It priced $1.25 billion in February, $1.24 billion in April, $1.220 billion in May and $1.265 billion in June.

Joint lead managers on the new sale were Citigroup Global Markets, Merrill Lynch and Morgan Stanley.