Freddie Mac, the second largest purchaser of residential mortgages, said it shrank its investment portfolio in May, while the delinquency rates on loans it guarantees were mixed at elevated levels.

The company bought back most of the seriously delinquent single-family loans from its securities trusts earlier this year, aiming to stem the drain on its capital and capping the delinquency rate.

But the rate remains high, and the multi-family loan delinquency rate rose further, as persistently high U.S. unemployment remains a strain on homeowners.

Freddie Mac in May said it would need $10.6 billion in government funds after losing $8 billion in the first quarter. Freddie and Fannie Mae (FNM.N), the largest U.S. mortgage funding company, combined have tapped more than $145 billion in government assistance.

The unpaid principal balance of Freddie Mac's mortgage-related investments fell by an annualized 14.5 percent, or about $9.2 billion last month, to $748.1 billion.

These holdings are down 2.3 percent through the first five months of the year and well below $823.43 billion in May 2009.

The pace of late mortgage payments on loans Freddie Mac guarantees was unchanged for single-family mortgages at 4.06 percent and rose to 0.32 percent for multi-family loans from 0.25 percent the prior two months.

The single-family delinquency rate has eased since peaking at 4.20 percent in February after the company repurchased loans that were at least 120 days late.

The multi-family delinquency rate was at the year's high, double the rate of a year ago.

Freddie Mac's total mortgage portfolio fell by an annualized 4 percent in May to $2.22 trillion, and has declined by 2.9 percent in the first five months of the year.

Refinance loan purchase and guarantee volume was $17.1 billion in May, down from $18.4 billion in April.

Total debt outstanding shrank by about $17.5 billion last month to $795.7 billion, nearly $100 billion less than a year ago, Freddie Mac said.

The shrinking supply has helped keep risk premiums on existing securities extremely low compared with Treasuries this year, even after the Federal Reserve finished its $175 billion buying campaign at the end of March.

Freddie Mac said its securities issuance and other guarantees fell by an annualized 5.2 percent in May, the third straight drop, and fell 10.5 percent year-to-date.

(Reporting by Lynn Adler, Editing by Chizu Nomiyama)

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