Freddie Mac’s holdings bulge in July

Freddie Mac said Thursday that its huge mortgage holdings grew in July at the fastest pace in 16 months as the company took advantage of a faltering housing market to scoop up cheaper mortgage-backed bonds.

In a bid to rescue the ailing housing and mortgage markets, lawmakers are pushing to raise the amount of home loans that can be held by Freddie Mac and its bigger rival Fannie Mae. The two government-sponsored firms are the largest U.S. home loan-funding companies.

Freddie Mac’s mortgage portfolio grew at an annual rate of 14% last month to $720.6 billion in the biggest one-month rise since March 2006. The portfolio has grown each month this year, except April.

Freddie Mac’s portfolio can grow about $17 billion more before it reaches a cap imposed by its federal regulator.

The market value of mortgage-backed securities, particularly those issued by companies other than Freddie Mac and Fannie Mae, fell sharply in July after a wave of defaults on sub-prime mortgages set off a widening credit crunch.

Although Freddie Mac and Fannie Mae mostly invest only in the highest-quality loans, bonds backed by them have also fallen in value in the market meltdown.

Senate Banking Committee Chairman Christopher J. Dodd (D-Conn.) said this week that he asked the Bush administration to lift the portfolio caps on Fannie Mae and Freddie Mac, but Treasury Secretary Henry M. Paulson Jr. expressed reluctance to do so. Dodd said allowing Fannie Mae and Freddie Mac to expand their mortgage portfolios would help stabilize housing markets.

Freddie Mac shares rose 47 cents, or 0.7%, to $64.42.