Other recent hot spots for outsourcing have been quality control functions where regulatory and/or secondary market scrutiny is intensifying, such as sampling designed to fulfill new Fannie Mae QC requirements, and fair lending and Home Mortgage Disclosure Act QC, says Aydelotte.
While there are common areas of focus, a lender's decision about which tasks to outsource typically result of a review of its processes where the outsourcer and lender identify the functions that can result in the greatest cost savings if contracted out. This generally results in more third-party involvement throughout the lending process.
"I don't think outsourcing is the right answer for every lender, and it needs to be strategic and very specific by lender. But the larger the scale and the more volume you can commit in aggregate, the better efficiency," says McGuiness.
"With a long-term engagement, you are able to affect a much deeper benefit," says Bob Krasney, senior practice manager of mortgage BPO at Wipro Technologies.
The deepening of mortgage companies' outsourced relationships, combined with post-downturn regulatory reform that clearly holds them responsible for anything their contractors might do on their behalf, raises the question of whether outsourcing liability and risks are increasing as well.
"On the compliance side, there is more of a deeper review and requirement for due diligence of us as vendors and we endorse that," says Aydelotte, noting that she encourages clients to thoroughly investigate her company's operations and make site visits.
One question lenders need to weigh in considering outsourcing is whether the savings are worth the "opportunity cost" of having to set aside time to make those site visits and perform due diligence, Koss says.
As outsourcers become more deeply ingrained in lenders' processes, it becomes more difficult to extricate them from operations. The complexity of a specific task affects how easily a lender can wind down an outsource relationship to either switch providers or bring the function back in-house, Aydelotte says.
A correspondent loan channel platform that has been almost entirely outsourcing would be "tough to bring in-house," but a smaller process is less of a concern, she says.
An outsourcer might need 60 to 90 days to get such an operation up and running, but it would probably take more like "90, maybe 120 days" to bring it back in-house, Aydelotte adds.
With volumes shrinking, there is consolidation risk when it comes to vendors as well as lenders to consider, she says.
Outsourcers even more so than the lenders they serve need to keep their costs under control, given increased regulation and competition for talent in overseas markets.
"Is the labor arbitrage still there? I would say yes," says McGuiness.
Mortgage companies should monitor inflation rates and perform cost-benefit analyses to manage this risk, Wheatley suggests.
Lenders who choose to outsource through offshore providers can still receive significant savings as high as 30% over time, but before the competition for talent heated up the efficiencies were closer to 10-20% higher, Krasney and other mortgage industry outsourcing providers generally say.
There has been some shifting to other overseas markets that might have less staffing competition and lower costs, but much of the offshore mortgage industry expertise so far remains in India, says Wheatley. Servicers also have been working with some customer service and collections contractors in the Philippines, says Krasney.
"The labor rates are going up in the offshore countries. In India and the Philippines, the labor arbitrage has been reduced. All the more reason why vendors, more than labor arbitrage, are focused on providing efficiencies through, automation, best practices, re-engineered workflow, by leveraging data analytics, and by reducing cycle times," says Krasney.
Some lenders also are concerned about data security and U.S. privacy law in offshore outsourcing, but providers generally obtain certification showing that they meet certain international auditing standards that alleviates this concern, he says.
The best way to mitigate any outsourcing concern is to make sure lenders and vendors are on the same page, and that lines of communication are open and very clear, suggests Aydelotte.
"Look for folks at a vendor who have actually been in your shoes. They will understand the risks, they will understand the costs, and they will understand how to best help you with what you need," she says.
"There should be a phased, controlled approach to outsourcing and frequent feedback crucial in the early stage," so that outsourced procedures can be tested and modified over time, McGuiness suggests.