U.S. Bank (USB) managed to reclassify approximately $500 million in forbearance mods as principle losses with little impact to ratings on the affected bonds of which it is trustee. To clarify, theses mortgages have no direct bearing on the direct mortgage operatations at US Bank.

The reclassification caused a spike in cumulative losses for certain S&P-rated U.S. residential mortgage-backed securities in the March 2014 remittance period, S&P Ratings Services said.  

“This reclassification will have a limited impact on our ratings, primarily because most of the ratings are already positioned as speculative-grade (i.e., rated 'BB+' or lower)," S&P said. "In fact, nearly half of all of the transactions have their highest Standard & Poor's rating at 'BB+'(sf) or lower."

The rating agency explained that for bonds that are rated investment-grade, it believes there remains sufficient credit enhancement to protect their current payment obligations against deterioration in the capital structure resulting from principal write-downs.

Recent events have shown that a reclassification of forbearance mods tends to result from the discovery of reporting discrepancies between servicer and trustee, like with what happened with the Ocwen Loan Servicing purchase of Homeward Residential in late 2012.

“Since the Ocwen disclosure, we have been actively reaching out to servicers to assess their general treatment of principal forbearance mods, as well as to determine whether the reclassification of losses might affect any transactions," S&P said. "In the case of the U.S. Bank transactions, we'll continue to closely monitor their performance and will take rating actions as we deem appropriate."