Fri Aug 6, 2004

NEW YORK, Aug 6 (Reuters) - Prepayments on U.S. mortgage bonds fell in July for the third consecutive month as fewer home loans were financed due to a general rise in mortgage rates this year, Wall Street analysts said on Friday.

Analysts estimated that $51 billion billion in fixed-rate mortgages that back bonds guaranteed by Fannie Mae (FNM.N: Quote, Profile, Research) and Freddie Mac (FRE.N: Quote, Profile, Research) were paid down in July, less than June's estimated paydown of $61 billion to $64 billion.

With fewer prepayments, the net supply of fixed-rate mortgage bonds grew by $8 billion, less than June's increase of over $15 billion, J.P. Morgan Securities analysts said in a research note on Friday.

July's prepayment slowdown on most mortgage-backed securities came mostly within analysts' forecasts.

"We expect minimal market reaction to these numbers given that they are generally in line with market consensus," Dale Westhoff, Bear Stearns analyst said in research report.

Interest rates on 30-year fixed-rate mortgages, the most widely held type of home loan in the United States, averaged 6.06 percent in July, down from June's 6.29 percent. The average 30-year rate for July is higher than 5.63 percent a year earlier, according to Freddie Mac.

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