NEW YORK - Freddie Mac, the second-largest U.S. home funding company, said on Friday its mortgage investment portfolio shrank in January, while delinquencies on loans it guarantees accelerated.

The portfolio decreased at an annualized 18.4 percent rate to $743.7 billion in January from $755.3 billion the previous month, the McLean, Virginia-based company said in its monthly volume summary.

In January 2009, the portfolio was $798.9 billion.

Delinquencies, which increase stress on the company's capital, jumped to 4.03 percent of its book of business in January from 3.87 percent in December. A year earlier the rate was 1.98 percent.

The delinquency rate on apartment buildings was unchanged month-over-month in January, at 0.15 percent, but up from 0.03 percent a year earlier.

As of Jan 31, $52.3 in fixed-rate mortgages and $19.1 billion in adjustable-rate mortgages in Freddie Mac mortgage-backed security pools were 120-plus days delinquent. The firm said earlier this month it would start buying back these loans in February.

In early September 2008, the U.S. government seized control of Freddie Mac and its larger sibling, Fannie Mae, amid heightened worries about shrinking capital at the congressionally chartered companies.

Freddie Mac on Wednesday said it lost $7.8 billion in the fourth quarter and warned it would need to tap more government funds this quarter as the housing market remains fragile.

The government-controlled entity said its loss came as rising defaults kept credit-related expenses elevated at $7.1 billion and as it wrote down the value of low-income tax credit partnership investments.

While Freddie has managed three straight quarters without tapping the Treasury credit line, it said changes to accounting rules adopted in 2010 would likely result in another trip to Uncle Sam in the current quarter.

Freddie Mac said refinance-loan purchase volume was $22.6 billion in January, down from December's $27.3 billion. Activity peaked last year, with March's $52 billion its largest refinance month since 2003.

The net amount of mortgage-related investments the firm agreed in January to purchase at a future date totaled $238 million, down from $2.6 billion during the month of December.

The company's total mortgage portfolio decreased at a 1.7 percent annualized rate in January to $2.247 trillion.

The government has been relying heavily on Fannie Mae and Freddie Mac in its efforts to stimulate the battered U.S. housing market by buying more mortgage loans, easing refinancing and helping homeowners avoid foreclosure.

The lowest mortgage rates in decades and high affordability helped the housing market find some footing in 2009 after a three-year slump. But after the worst downturn since the Great Depression, the housing market remains remains highly vulnerable to setbacks and heavily reliant on government intervention.

Any improvement in the sector would bode well for the entire U.S. economy. (Additional Reporting by Al Yoon; Editing by Dan Grebler)

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