If you have a previous reservation which you modify, it will always reallocate the points according to the established rules. Unless you specify otherwise it will take Holding Points first, if they qualify. Then banked, borrowed, and finally the regular points. Transfered Points usually require you to call MS to use them in a modification.
Where this is nice, is, suppose you have two reservations, one of which uses mostly banked points, and one of which uses regular points. Then suppose you cancel the one with banked points. So now you have banked points sitting in your account, and regular points being used for the reservation. Well, you just go to the ongoing reservation and choose MODIFY. Now, just step through the reservation, page by page, without making ANY changes. When it comes to the points, it will automatically grab the banked points out of your account, first, and will now apply them to that reservation. Keep stepping through, and choose CONFIRM, and your banked points should now be applied, and your regular points now available.
If you do this, please check to make sure the points are now allocated how you want them. If you are not confident, or if you have any problems, call Member Services and ask them to do it.