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The Federal Home Loan Bank of Seattle has reported receiving regulatory approval for a capital plan amendment that will expand the ability of its members to access Seattle FHLBank funding based on their stock holdings.The FHLBank said its board of directors is expected to consider the amendment at its June 30-July 1 meeting, after which the capital adjustment would likely be accessible to members beginning in July. The Seattle FHLBank said the capital plan change could expand members' capacity for new advance borrowings by approximately $14.3 billion (based on stock already invested in the bank) without requiring members to buy additional FHLBank stock. Under the amended plan, Seattle FHLBank members can use available "membership stock" (which must be purchased to participate in the bank cooperative) to support advances from the bank. The available membership stock may be accessed once all the member's excess class B(1) and class B(2) stock has been used. Before the amendment, the membership stock requirement portion of a member's stock holdings could not be used toward securing advances, the FHLBank said.

RealtyTrac, an online foreclosure marketplace based in Irvine, Calif., has reported that the number of new properties in some stage of foreclosure decreased 2.5% nationwide in May.The company's Monthly U.S. Foreclosure Market Report indicates that 62,432 new foreclosure properties were added to the rolls in May, compared with 64,057 in April. "Although there were significant monthly fluctuations in some states, May's foreclosure numbers should help curb any immediate concerns of a nationwide real estate bubble," said James J. Saccacio, RealtyTrac's chief executive officer. The company said new reported foreclosures in New Mexico soared in May, giving it the nation's highest foreclosure rate. One property was in foreclosure in New Mexico for every 554 households, more than three times the national rate of one in 1,853, the company reported. RealtyTrac can be found online at http://www.realtytrac.com.

The rating of class B-1 of Terwin Mortgage Trust series 2004-EQR1 has been placed under review for possible downgrade by Moody's Investors Service.The rating action was based on the worse-than-expected performance of the underlying mortgage pool as well as the deterioration of credit enhancement in relation to expected losses, Moody's said. The collateral for the transaction is nonperforming mortgage loans, which are typically defined as loans that are delinquent by 90 days or more, are subject to bankruptcy or foreclosure proceedings, or are held as real-estate-owned properties.

Four classes of Truman Capital Mortgage Loan Trust mortgage-backed securities have been placed on review for possible downgrade by Moody's Investors Service.The affected classes are as follows: series 2002-1, classes M-1, M-2, and B; and series 2002-2, class B. The rating actions were attributed to worse-than-expected performance by the underlying pool of mortgage loans. The underlying collateral consists of subprime and re-performing residential mortgage loans. The latter consist primarily of previously delinquent and defaulted loans that had made at least three out of four of the most recent regular scheduled or bankruptcy plan payments, Moody's explained.

Class BF of Bear Stearns asset-backed certificates series 1999-2 group 1 has been downgraded from CCC to C by Fitch Ratings.In addition, Fitch affirmed the ratings on nine other classes in the securitization. The downgrade was attributed to poor collateral performance, losses incurred, and loss expectations in relation to credit support levels. Series 1999-2 is backed by fixed-rate (group 1) and adjustable-rate (group 2) loans originated by Conseco Finance Corp., Amresco Residential Mortgage Corp., and five other originators, the rating agency said. Fitch can be found on the Web at http://www.fitchratings.com.

Meanwhile, Standard & Poor's Ratings Services has announced revised criteria for U.S. option adjustable-rate mortgage loans that increase the required credit enhancement for such loans to account for the default risk stemming from "payment shock."S&P said it will first assess default risk by analyzing the effect of the adjustable interest rates. "Then, to address the potential payment shock to the borrower when the minimum payment is reset to make a fully amortizing principal and interest payment, a 20% increase in foreclosure frequency will be applied," S&P said. Finally, additional foreclosure-frequency adjustments will be applied to loans with FICO scores less than 695. The new option ARM criteria will be effective for all S&P-rated transactions closing on or after Aug. 1, the rating agency said. S&P can be found online at http://www.standardandpoors.com.

Rising interest rates will probably increase the payment-shock risk for borrowers in the U.S. market for option adjustable-rate mortgages, which may lead to higher defaults and losses on option-ARM pools compared with interest-only or hybrid mortgage pools, according to Fitch Ratings.In a report on its revised rating methodology for option ARMs, Fitch said the degree of payment-shock risk and loan balance growth is determined largely by the initial teaser rate, the volatility of a particular index, and balance caps. "The higher payment-shock risk for the option ARMs is due to the minimum-payment option that keeps payments low for up to five years, but then can result in a 'recast' requiring a much higher payment," said Glenn Costello, a Fitch managing director. "That payment may reflect a larger balance, due to negative amortization. .... The borrower's risk of default is exacerbated in a rising rate environment." Fitch recently completed a historical analysis of over 65,000 negatively amortizing loans from 1994 through 2004. Fitch can be found online at http://www.fitchratings.com.

Delinquency and foreclosure rates fell across the board in the first quarter of this year, according to the Mortgage Bankers Association.Overall, 4.31% of loans were at least 30 days overdue at the end of the first quarter, down 15 basis points from year-end. The seasonally adjusted delinquency rate was also a 15-basis-point improvement from that of a year earlier. The foreclosure inventory declined to 1.08%, a drop of 21 bps from a year earlier. And the number of loans entering the foreclosure process also declined. Doug Duncan, chief economist of the MBA, attributed the improvement in credit quality to strong economic growth and the low interest rate environment. Moreover, he said that the likelihood of continued economic strength and job growth with only modestly rising interest rates bodes well for the future. "These expectations likely mean we will continue to see moderate declines in delinquencies for the next few quarters," Mr. Duncan said. The MBA can be found online at http://www.mortgagebankers.org.

Class B3 of Structured Asset Securities Corp. residential mortgage-backed certificates, series 2001-2, has been downgraded from BB to B by Fitch Ratings.In addition, Fitch affirmed the ratings on three other classes in the transaction. The downgrade was attributed to high monthly pool losses and delinquency levels. As of May 25, 13.66% of the pool was over 90 days delinquent, and cumulative losses were 0.98% of the original pool balance, the rating agency said. "It should be noted, however, that concurrent with May's losses of nearly $500,000, the percentage of loan principal in the most severe delinquency buckets -- foreclosure and real estate owned -- fell precipitously from 14% down to 7%," Fitch reported. Estimated losses associated with the liquidation of such loans would result in the writedown of just over 50% of the remaining B4 bond, the rating agency said.

Three classes of notes issued by HarbourView CDO III Ltd., a collateralized debt obligation that includes mortgage-backed securities, have been downgraded and removed from Rating Watch Negative by Fitch Ratings.The downgrades were as follows: class A, from AA-minus to A-minus; class B, from BBB-minus to CCC; and class C, from B-minus to C. The rating agency said the deal has been in a technical default since March, and that a majority of class A noteholders accelerated the maturity of the transaction. "As a result, all principal and interest proceeds available -- less senior transaction fees and expenses, including the hedge counterparty payment -- will be used to pay the class A interest and principal until the notes are paid in full," the rating agency said. Fitch said HarbourView III is composed of 35.0% residential MBS, 29.6% asset-backed securities, 16.4% commercial MBS, 8.6% real estate investment trusts, 7.8% CDOs, and 2.6% corporate debt. The rating agency can be found online at http://www.fitchratings.com.