JUL 26, 2013 12:42pm ET

Survey Glitch Finds Carrington with $300M in Principal Forbearance Loss

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A Fitch survey revealed that Carrington Mortgage Services has approximately $300 million in principal forbearances that have not been reported as losses.

Overall, this affects about 4,300 loans in over 33 residential mortgage-backed securities transactions within the Santa Ana, Calif.-based servicer’s portfolio.

When Fitch published the results of this survey earlier this month, Carrington originally indicated not having any outstanding principal forbearance modification amounts. However, the servicer revised its information showing that it does have principal forbearance amounts outstanding on non-HAMP modifications which were not passed through to the respective trusts as realized losses.

According to Carrington, the initial data submitted to Fitch only referenced its HAMP principal forbearance modifications in which the principal forborne amount was reported as a loss. The survey question asked by Fitch was meant to include both HAMP and non-HAMP modifications.

Carrington said that for non-HAMP modifications, it follows pooling and servicing agreements guidelines, and therefore passed any principal forbearance amounts to the trust as losses only upon liquidation of the loan.

Due to the servicer’s intention to follow PSAs, Fitch does not anticipate these forborne amounts to be reclassified. Therefore, the New York-based ratings agency expects any ripple effect on RMBS bond ratings would be “modest even if these losses were to be realized sooner” due to changes in Carrington’s reporting procedures.

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