UPDATE 1-U.S. mortgage bond prepayments decrease in May

(Adds Freddie Mac mortgage rates, Fannie Mae speeds, JPMorgan quotes, data, byline)

By Julie Haviv

NEW YORK, June 6 (Reuters) - Prepayments on U.S. mortgage-backed securities decreased in May from April levels as home loan refinancing activity dropped, according to figures from several Wall Street banks.

The drop in refinancing was a reflection of higher mortgage rates, the banks said in reports released late on Thursday and early Friday. The May figures also reflected the impact of continued deterioration in the housing market.

Prepayment speeds were mostly in line with to lower than Wall Street's expectations.

Overall fixed-rate agency prepayment speeds fell 20 percent in May, with the paydowns 17 percent lower at $46 billion, according to JPMorgan Chase.

Net fixed-rate, mortgage-backed securities issuance rose by $20 billion to about $70 billion, the company said in a research report.

The figures from JPMorgan were largely in line with data released from several other investment banks.

Prepayment speeds are key factors that investors use to determine the value of mortgage bonds. If prepayments rise or fall too quickly they hurt returns on mortgage securities.

The decrease in prepayment speeds in May followed a drop in April.

Mortgage rates were higher in May versus April but down from December. Lower mortgage rates usually encourage home loan refinancing which in turn boosts prepayment speeds.

Mortgage finance company Freddie Mac (FRE.N) said interest rates on U.S. 30-year mortgages averaged 6.04 percent in May, up from 5.92 percent in April. Rates on 15-year mortgages averaged 5.60 percent, up from April's 5.47 percent.

In December, interest rates on U.S. 30-year mortgages and 15-year mortgages averaged 6.10 percent and 5.75 percent, respectively.

Among actively traded issues, JPMorgan said Fannie Mae's (FNM.N) 30-year, 5 percent coupons created in 2003, 2004 and 2005 were prepaid at conditional prepayment rates, or CPRs, of 7.9 percent, 8.0 percent and 7.7 percent, respectively.

Fannie Mae 30-year, 5.5 percent coupons created in 2003, 2004, 2005, 2006 and 2007 prepaid at CPRs of 10.3 percent, 9.9 percent, 9.5 percent, 10.5 percent and 8.0 percent, respectively.

Fannie Mae 30-year, 6.0 percent coupons created in 2003, 2004, 2005, 2006 and 2007 prepaid at CPRs of 12.6 percent, 13.8 percent, 12.7 percent, 15.3 percent and 11.8 percent, respectively.