Freddie Mac said Tuesday the share of late-paying mortgages it holds fell in September for a fourth straight month, suggesting some stabilization in the U.S. housing market.

The number of loan modifications rose to 17,121 last month from 9,976 in August as homeowners sought to reduce mortgage rates and negotiate with lenders so they could stay in their homes.

"Overall credit is improving to some extent. It reflects fewer and fewer loans going into delinquency," said Janaki Rao, interest rate strategist at Morgan Stanley in New York.

These latest signals on the real estate market come as Freddie Mac and its larger sibling, Fannie Mae, are in the middle of the latest housing flare-up amid allegations that some banks used shoddy paperwork in foreclosures.

The two federally controlled companies combined own or guarantee more than half of the $11 trillion in U.S. mortgages. They buy loans from lenders and bundle them to back bonds they sell to investors.

Declining delinquencies portend fewer loans going bad and less losses for investors who own Freddie's mortgage-backed securities.

The overall delinquency rate on single-family mortgages fell to 3.80 percent last month, the lowest since October 2009, when it was 3.65 percent, Freddie Mac said.

However, late mortgage payments are hovering at historically high levels, especially for subprime and multifamily loans.

"They are not out of the woods, but it's a step in the right direction," Morgan Stanley's Rao said.

On the other hand, more loans being modified signal faster prepayments on Freddie's MBS, which erodes their values.

The increase in mortgage prepayments, due either to modification or refinancing, accelerated a shrinkage of Freddie's book of business.

In September, Freddie Mac's mortgage portfolio decreased at an annualized rate of 7.1 percent, the highest since March, from 5.2 percent in August. Liquidations totaled $48.65 billion, up from $38.47 billion in August.

In other housing news, home prices in 20 major U.S. cities fell 0.3 percent in August from July but were up 1.7 percent from a year ago, S&P/Case Shiller said Tuesday.

The latest Freddie Mac portfolio figures provoked little reaction in the MBS market, analysts said.

Freddie and other agency MBS fared better than Treasuries and interest rate swaps as a rise in yields curbed expectations of faster prepayments. Higher-coupon MBS outpaced Treasuries and swaps by 1/32 to 2/32 in price.