NEW YORK - Freddie Mac, one of the largest providers of funding for U.S. housing, is set to break ground on its first bond backed by commercial mortgages, a source familiar with the offering said on Friday.

The sale, as early as Tuesday, could be about $1 billion through a trust organized by Deutsche Bank, the source said.

Freddie Mac (FRE.P) and rival Fannie Mae (FNM.P) have been the main sources of funding for multifamily housing with the $700 billion market for commercial mortgage-backed securities frozen for the past year.

Freddie Mac's multifamily portfolio in the first quarter increased to $75.7 billion from $72.7 billion at the end of 2008, and an average balance of $58.8 billion early last year.

A Freddie Mac spokesman declined to comment on the issue. The New York Post earlier reported the sale, citing sources.

McLean, Virginia-based Freddie Mac already issues and guarantees billions of dollars in residential mortgage-backed securities each month.

The new commercial securities may also carry some form of Freddie Mac backing, the source said. (Reporting by Al Yoon; Editing by James Dalgleish)