Moody's: Offshoring Trend Is Likely to Keep Growing

About a quarter of mortgage servicers rated by Moody's Investors Service outsource some loan administration functions overseas, and many of these are even sending some customer contact work abroad.

"Currently, nine of the 35 primary U.S. mortgage servicers that Moody's rates engage in offshore operations, including six servicers that outsource part of their collections, although servicers tend to retain in the U.S. those functions they view to be core competencies, such as late-stage collections or loss mitigation," said Gene Berman, Moody's analyst and author of a report on the subject.

The processes being moved offshore vary from servicer to servicer, and range from customer contact functions such as customer service and collections to purely back-office tasks such as document imaging and loan payoff quote preparation.

Among the U.S. mortgage servicers studied by Moody's that engage in outsourcing, the percentage of staff that is located internationally ranges from less than 10% to more than 50%. India remains the most common country for offshoring work, although some servicers have also outsourced work to the Philippines and to Costa Rica.

"Cost reduction is cited by most mortgage servicers as the main driver for the decision to go offshore. Servicers have found that labor costs at offshore locations can be as low as one-third of their U.S. cost. These lower labor costs enable some firms to hire a larger staff than is immediately necessary, often providing a 10% to 15% buffer to mitigate the effects of turnover."

Another benefit is that offshoring can expand the number of time zones where a servicer has call centers, making it easier to extend call center hours and improve turnaround time in non-call-center functions.

"To build a successful operation overseas, servicers must effectively anticipate and address the challenges that are inherent in offshore operations such as additional staff training, high employee turnover - more than 100% in some cases - as well as safeguarding borrower information and long distance management," Mr. Berman said.

Moody's expects the trend toward international outsourcing to increase among mortgage servicers. In addition, Moody's said India might face competition from other companies as competition drives up the cost of labor in that market.

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