Oct. 24 (Bloomberg) -- Freddie Mac said its portfolio of home loans and mortgage bonds shrank at an annualized rate of 38 percent last month as federal regulators seized control of the government-sponsored mortgage-finance company.

The portfolio, which had expanded by $85.8 billion in April through July, fell by $24 billion in September to $736.9 billion as Freddie Mac sold off more assets, the McLean, Virginia-based company said in its monthly volume summary today.

The pace of the decline slowed from 56 percent in August as federal regulators directed the company and rival Fannie Mae in Washington to ramp up their purchases to revive the U.S. housing market. The Federal Housing Finance Agency announced Sept. 7 that it had placed Fannie and Freddie into conservatorship after $14.9 billion in losses over four quarters. Rising yields on Fannie and Freddie debt over benchmarks has made it harder for the companies to make money on the debt they buy.

``In its first month under conservatorship, Freddie Mac's retained portfolio didn't do anything much different than it would have otherwise, as best we can see from this morning's monthly summary,'' Jim Vogel, the head of agency debt research at FTN Financial Group in Memphis, Tennessee, said in a note to clients. Vogel said it ``improbable'' that Freddie will substantially increase its purchases this month because its cost of borrowing has risen.

Rates Rise

Average 30-year mortgage rates, which dropped to a low of 5.72 percent on Sept. 15, rose to more than 6.7 percent last week. The cost Fannie and Freddie pay over U.S. Treasuries to issue debt has more than doubled, according to data compiled by Bloomberg. Yield spreads on Freddie's five-year notes over U.S. Treasuries surged 16.6 basis points today to 145.5 basis points at 9:06 a.m. in New York. A basis point is 0.01 percentage point.

Freddie sold $22.6 billion of its own securities, $2.4 billion of bonds guaranteed by Fannie or government mortgage bond insurer Ginnie Mae and $2.5 billion in securities backed by private corporations. The company also increased its purchases of individual home loans by $3.5 billion.

Freddie also said it entered contracts to buy $2.5 billion in mortgage assets in the future, a turnaround from its commitments to sell $15.4 billion the previous month.

The quality of Freddie's mortgage holdings deteriorated in September as more borrowers fell further behind in their mortgage payments. The rate of loans 90 or more days past due in Freddie's portfolio rose 11 basis points to 1.22 percent, more than double the rate of 0.51 percent a year ago.

The $200 billion rescue of Fannie and Freddie, once billed by the Bush administration as the centerpiece of efforts to revive financial markets, was followed by a $700 billion bailout of banks. Investors and industry groups including the National Association of Realtors have called on the Treasury to renew its focus on the mortgage market.

To contact the reporter on this story: Dawn Kopecki in Washington at dkopecki@bloomberg.net.

Last Updated: October 24, 2008 09:59 EDT