UPDATE 2-US mortgage bond issuance falls in 1st-qtr 2007

(Adds quotes, details on Thomson data, background)

NEW YORK, March 30 (Reuters) - U.S. mortgage-backed securities issuance fell in the first quarter of 2007 from the same period last year, Thomson Financial said on Friday.

Stress in the subprime mortgage market delayed and prevented some issuance, but its overall impact was moderate.

U.S. MBS issuance totaled $247.7 billion in the first quarter of 2007, down from $261.4 billion in the same period a year earlier, the financial data firm said.

"Subprime is still a narrow enough sector of the market, and the components more subject to defaults are a still narrower component of that," said Richard Peterson, director of capital markets at Thomson Financial in New York.

U.S. mortgage-backed securities issued by Fannie Mae (FNM.N) and Freddie Mac (FRE.N) have so far been unaffected by the delinquencies in the subprime mortgage market, which caters to borrowers with poor credit histories.

Rising defaults on subprime loans have taken a toll on bonds backed by poor credit, but Fannie and Freddie's triple-A rated $3.5 trillion "agency" MBS market is seen as safe.

Securities backed by subprime loans are typically carved into tranches of varying degrees of risk and so far the hardest hit by the surge in defaults has been the lowest rated.

The ABX derivative index that contains subprime mortgage asset-backed securities has been slumping since late last year and while the index fall has bottomed out in recent weeks, it is substantially below where it started the year.

Fannie Mae and Freddie Mac loans have delinquencies that are low and their loan-to-value ratios are low, analysts say.

"Over the last few weeks, issuance to some degree slowed down because of what's going on in subprime," said Alec Crawford, head of MBS strategy at RBS Greenwich Capital in Greenwich, Connecticut.

"Basically people took their eye off the issuance and were looking at what's going on in ABX, subprime and credit in general," he said. "Once the quarter-end is over, which is year-end for Japan as well, we are going to see more focus back on the new issue markets."

JPMorgan Chase & Co. (JPM.N) was the top underwriter of U.S. mortgage-backed securities for the first three months of the year, Thomson Financial said.

JPMorgan underwrote 28 issues of mortgage-backed bonds, totaling $29.2 billion, an 11.8 percent market share.

Lehman Brothers LEH.N ranked second among U.S. MBS underwriters in that quarter, with a 10.0 percent market share. The company underwrote 29 issues totaling $24.8 billion.

Washington Mutual Inc. WM.N was third, with a 7.6 percent share. The firm underwrote 15 issues worth $18.9 billion.

According to Thomson, the company tracks mortgage bonds backed by whole commercial and residential real estate loans as well as mortgage-backed securities initially packaged by Fannie Mae, Freddie Mac and Ginnie Mae. Interest-only and principal-only strips of agencies are not tracked. (Additional Reporting by Jonathan Stempel)