[Update 1: Clarifies Fitch's loss figures.]
Carrington Mortgage Services unexpectedly reported $300 million in losses on outstanding principal forbearances. The change is expected to have a slight impact on 5,000 loans across 73 different residential mortgage-backed securities transactions, according to Fitch Ratings.
Carrington previously indicated that the firm had no principal forbearances to report as losses. Servicers generally report principal forbearances as losses at the time of modification or later. Carrington revised its opinion when new data showed the company had $300 million in forbearances to report to various RMBS trusts.
"Carrington stated that for non-HAMP modifications it follows PSA guidelines," Fitch noted. "Therefore, Carrington passes any principal forbearance amounts to the trust as losses only upon liquidation of the loan. Based on Carrington's intention to follow the PSAs, Fitch does not expect these forborne amounts to be reclassified."
Any impact on RMBS bond ratings is expected to be modest, the ratings giant added.
RMBS investors began seeing the downside of principal forbearance modifications earlier this year when confusion over how to report them resulted in a $1 billion surprise loss on mortgage bonds backed by Nationstar-serviced loans. In May, Ocwen also reported $1 billion in reclassified principal forbearance losses.
At the time, Diane Pendley, managing director at Fitch, said the worst of the unexpected losses seems to be limited to Ocwen and Nationstar.
An uptick in servicing transfers highlighted the issue for RMBS investors.
"The recent increase in servicing transfers has revealed reporting inconsistencies between servicers," said Pendley. "Principal forbearance reporting has become a concern for RMBS investors especially those sensitive to the timing of losses, though we’ve likely seen the worst of the trend with Nationstar and Ocwen."
