Freddie Mac, the nation's second-largest source of home loan funding, said on Thursday its second-quarter net income fell 45 percent from a year earlier as more borrowers defaulted on their loans.

While the $764 million in net income fell sharply from the $1.4 billion last year, it reverses three quarters of losses as the business of guaranteeing home mortgages grew.

Chief Financial Officer Buddy Piszel said failing loans due to the deteriorating housing market were largely responsible for $600 million in costs for the quarter.

In light pre-market trading, Freddie shares were down 4.7 percent to $60.25.

In a statement, the company said consumers were returning to the traditional, fixed-rate mortgages that Freddie buys and securitizes as innovative financing options such as adjustable-rate mortgages fall out of favor. Non-traditional mortgages helped fueled a housing bubble that began to deflate two years ago as foreclosures and defaults rose.

Piszel said that Freddie's focus on traditional mortgages would allow it to weather the storm that is roiling the housing market.

The company's business of guaranteeing home loans increased at an annualized rate of 15 percent in the second quarter compared to a 6 percent forecast of total U.S. mortgage debt this year, the company said.

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