UPDATE 1-US mortgage applications near slowest of 2008-MBA

(Adds home sales forecast, economist comment)

NEW YORK May 21 (Reuters) - Applications for U.S. home mortgages fell to the second-lowest level of the year last week as interest rates rose, an industry group said on Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity fell 7.8 percent to 621.6 in the week ended May 16. The index touched its 2008 low in the week of April 25, when it hit 567.

The MBA's seasonally adjusted index of refinancing applications declined 8.7 percent to 2,210.5 last week, the MBA said. The gauge of loan requests for home purchases dropped 6.9 percent to 352.5 in the period.

Applications for refinancings fell 8.7 percent, to 2,210.5 from 2,422.1 the previous week.

The data bodes poorly for the pace of U.S. existing home sales, which according to economists probably fell to 4.85 million units on an annual basis in April, from 4.93 million units in March. The consensus forecast would fall below the historic low of 4.89 million units in January, and be off 33 percent from the September 2005 peak.

The National Association of Realtors is scheduled to report April existing home sales on Friday.

"Although the direction has been the same, the decline in mortgage applications has been considerably smaller than the decline in home sales," Lehman Brothers economist Michelle Meyer said in a research note. "This could be because the MBA counts all applications in the survey -- even those that have been rejected."

Fixed 30-year mortgage rates averaged 5.9 percent in the week, up 8 basis points from the prior week. Rate shifts have caused volatility in refinancing data, Meyer said.

Relatively low interest rates have been among the few supports to housing, where soaring foreclosures have sparked emergency measures by lawmakers to stabilize the market.

The Senate Banking Committee on Tuesday approved a bill that aims to refinance borrowers whose home values have fallen below the balance of their loan into a government program.

Falling home prices have made an increasing number of U.S. homeowners more vulnerable to default. Nearly a third of subprime borrowers owed more than their home was worth at the end of last year, and that figure will double to 63 percent in 2009, according to Credit Suisse. (Reporting by Al Yoon; Editing by Dan Grebler)