A third U.S. mortgage servicer has owned up to a delay in reporting loan modifications that will result in losses for residential mortgage backed securities (RMBS).
Carrington Mortgage Services has informed Fitch Ratings that RMBS it services will recognize about $300 million in losses on principal forbearance that has yet to be reported as losses. The forbearance affects some 4,300 loans over 33 RMBS transactions
Carrington had originally told Fitch it had no outstanding principal forbearance modification amounts when it was contacted by the agency for a survey published July 3.
This follows revisions reported by servicers Ocwen Financial Corp. and Nationstar. Ocwen disclosed in May that RMBS it serviced would recognize $1 billion in losses as the result of a revision in the way it reports loan modifications. Fitch subsequently contacted the RMBS servicers it rates to see whether they account for principal forbearance as a loss at the time of modification or at some other time.
Carrington initially told Fitch that it reported these amounts as losses at the time of modification.
But when Fitch conducted a follow-up survey, Carrington reported that it did have principal forbearance amounts outstanding that had not been passed through to the respective trust as realized losses. The servicer said the modifications were not made under the Home Affordable Mortgage Modification Program (HAMP), which requires losses to be recorded immediately. It said it follows the pooling and servicing agreement guidelines and passes any principal forbearance amounts on the trusts as losses only when the loans are liquidated.
Fitch expects any ripple effect on RMBS bond ratings would be modest even if these losses were to be realized sooner due to a change in Carrington's reporting procedures.
The agency said other servicers it contacted confirmed that their original responses to its survey were correct and unchanged.
Editor's note: An earlier version of this article listed higher figures for the dollar amount of losses and number of securities affected; Fitch subsequently revised these figures lower.