Freddie Mac delinquencies up; portfolio shrinks

NEW YORK (Reuters) - Freddie Mac's (FRE.N) mortgage investment portfolio shrank for a second consecutive month in February while delinquencies rose to the highest in at least three years, the No. 2 U.S. home funding company said on Tuesday.

The government-sponsored enterprise said its portfolio shrank by an annualized 12.4 percent in February to $709.5 billion. The portfolio has contracted by an annualized rate of 9.4 percent year-to-date.

Policy-makers have been pressing Freddie Mac and rival housing finance company, Fannie Mae (FMN.N), to buy more mortgages as a way to bring down lending rates which rose last month.

Both companies have been balancing demands for them to increase their investment portfolio with the need to preserve capital and protect shareholders as the country's housing crash drives mortgage late payments to record levels.

Mortgage delinquencies in Freddie Mac's investment portfolio rose to 0.71 percent in January versus 0.65 percent in December, the McLean, Virginia-based company said in a statement. The delinquency rate was the highest since it started using the current method of calculating delinquencies in about three years ago.

The delinquency rate in January was also sharply higher than a year-earlier when it stood at 0.25 percent in January 2007.

Freddie Mac's total mortgage portfolio, which combines its mortgage investment portfolio with mortgage securities sold by Freddie Mac, increased at an annualized rate of 8.4 percent year-to-date and 12.0 percent in February to $2.132 trillion.

Fannie Mae, the largest provider of funding for U.S. home mortgages, said on Monday delinquencies on its single-family home financing business rose in January to 1.06 percent, the highest since at least 1997. The rate increased from 0.98 percent in December.

Fannie Mae said its mortgage investments increased $594 million to $721.6 billion in February, representing a 1 percent annualized growth rate.

The two companies have room to expand their portfolios.

Last week, Fannie Mae's and Freddie Mac's regulator, the Office of Federal Housing Enterprise Oversight, said it reduced to 20 percent from 30 percent the additional capital they must keep on hand, and the two companies would be cleared to buy an additional $200 billion in mortgage investments.

"We expect Freddie Mac's growth to see a much smoother trajectory in 2Q now that it has more capital breathing room," said Jim Vogel, agencies analyst at FTN Financial Capital Markets in Memphis, Tennessee, said in commentary published Tuesday.

Retained portfolio purchases in February were $7.9 billion, significantly lower than January's $13.5 billion, while retained portfolio sales in February were at $6.2 billion, lower than January's $7.6 billion.

Net mortgage purchase agreements in February were at $14.8 billion, significantly higher than January's $600 million.

Net purchase commitments last month should bring the portfolio back to between $715 billion and $720 billion by March 31, Vogel said.

Freddie Mac's duration gap, an interest rate risk measure, stayed at zero months, unchanged from the previous month. A zero duration gap indicates Freddie Mac's payments to its debtholders matches the income its receives on its assets.

Fannie Mae shares on Tuesday were up 47 cents, or 1.51 percent, at $31.63 on the New York Stock Exchange.

Freddie Mac shares on Tuesday were up 6 cents, or 0.2 percent, at $30.67 on the New York Stock Exchange.

(Reporting by Julie Haviv; Additional Reporting by Albert Yoon)