UPDATE 2-Freddie Mac holdings grow; more room under cap

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NEW YORK, July 23 (Reuters) - Freddie Mac's retained mortgage holdings increased by an annualized 1.2 percent in June to $712.1 billion, leaving it room to expand under a growth cap agreed upon with its regulator.

The second-largest U.S. home funding company agreed to curb its purchases of mortgage assets after an accounting scandal, while it works toward returning to timely financial reporting.

Freddie Mac estimated that its retained portfolio, as measured to conform with GAAP accounting, was about $703.3 billion last month. That was below the $724.5 billion limit set by the regulator, the Office of Federal Housing Enterprise Oversight.

Freddie Mac purchases mortgage assets and repackages them as securities for sale to investors or to hold in its own "retained" portfolio.

Both Freddie and Fannie Mae (FNM.N), the largest U.S. home funding company, have been buyers during a bond sell-off that lowered the prices of mortgage securities compared with the cost of funding those purchases, analysts have said.

The retained portfolio's June increase followed a 3.8 percent May rise, bringing the year's growth in the portfolio to 2.3 percent.

The company also said its mortgage purchase commitments for the retained portfolio rose to $40.4 billion in June from $17.1 billion in May.

The company's total mortgage portfolio expanded at an annual rate of 13.5 percent in June, bringing the year's growth to 13.8 percent.