Psychic Bloodline, Undercasting Prodigy into prestige class

[Sporge]

So I was building a Psychic bloodline sorcerer and was planning to take the veiled illusionist prestige class. I was building it in hero lab and it is interacting weirdly and upon rereading, I want a second opinion or 2.
Undercasting prodigy reads:
[spoiler = Undercasting Prodigy]
Undercasting Prodigy (Sp): Starting at 9th level, whenever you gain a new level of spells, you automatically replace any psychic bloodline spells that can be undercast with the highest-level version you can cast in your list of spells known. For example, at 9th level, you would replace mind thrust I, id insinuation I, and ego whip I with mind thrust IV, id insinuation III, and ego whip II, respectively, as spells known.
[/spoiler]

It says any psychic bloodline spells, regardless of if you in sorcerer long enough to get it as a bonus spell, at least that is how hero lab is reading it. I don't think it is entirely intentional but RAW is that how it works?
When building I thought I wouldn't have spells past ego whip 1 learned and was getting the 9th level power through the robes of arcane heritage. I was expecting it to give me mind thrust/ego whip at higher level versions but it also gave me intellect fortress.

[Rengarth]

It seems to mean that you are forced to select the greater version of the spells you previously knew at the higher spell level, but then are free to replace the lower level slots as you wish.

The wording of the entry seems a bit backward to me. - You can't place a level 4 spell in a level 2 slot. The term "replace" doesn't make sense.