Fannie Mae’s mortgage portfolio shrank in October, moving the government-chartered company closer to losing its status as the biggest source of money for American home loans to rival Freddie Mac.

The mortgage holdings, which account for about two-thirds of Fannie Mae’s profit, fell 1.5% or $10.57 billion to $717.2 billion, representing a 16.1% decline on an annual basis, the company said in an e-mailed statement. Freddie Mac’s portfolio totaled $678 billion in October.

The decline indicates that Fannie Mae, which is still working to correct $10.8 billion of accounting errors, may eventually cede to Freddie Mac the competitive advantages that come with being the bellwether in American mortgage finance and the leading corporate influence on federal policy regarding housing finance.

“I would expect Freddie Mac to have a stronger market voice,” an analyst at hedge fund Medley Global Advisors in New York, Josh Rosner, said. In addition, “I would expect them to have somewhat of a stronger regulatory voice.”

Fannie Mae will have difficulty restoring its undisputed lead until it completes a restatement of earnings from 2001 until mid-2004, analysts and investors said.The company said in August it won’t complete the restatement until the second half of 2006.

Fannie Mae’s portfolio was $904.6 billion at the start of the year, while Freddie Mac’s was $653.6 billion. Fannie Mae is based in Washington and Freddie Mac is based in McLean, Va.