Offshoring Gets Easier, But with a Caveat
It's easier than ever to outsource loan administration work to low-cost labor centers such as India, but lenders who have gone this route find that labor prices are rising in some key cities of India where many U.S. firms have set up shop.
As demand grows, lenders find that employee turnover is a big challenge in cities such as Mumbai and New Delhi. As a result, some are setting up shop in "second wave" locations where competition for qualified employees is less intense.
David Zugheri, president and co-founder of First Houston Mortgage, said that the prevalence of low-margin, conforming loan products in today's market has put added cost pressure on lenders. And that is helping to fuel the need to rely on low-cost labor markets for back-office functions, Mr. Zugheri said during SourceMedia's Mortgage Servicing Conference here.
About the industry's subprime mortgage crisis, Mr. Zugheri said that the race to the bottom of underwriting standards was fueled by a race to the top of profit margins.
Now that those days are gone, "You cannot afford to be inefficient," he said.
"We cannot afford to be completely on-shore."
But he said lenders need to be careful about what functions are outsourced, expressing skepticism about the wisdom of offshoring "customer facing" functions such as call centers. Putting call centers overseas leaves a lender with significant "reputation risk," he said. Training is key to avoiding problems, such as data misuse or theft. He also recommends that Social Security numbers be removed from documentation that is used in offshore offices.
He said non-customer contact functions are probably a better bet to offshore first.
And to benefit from offshoring, Mr. Zugheri said that lenders should also evaluate their whole process in an integrated approach to improve processes and data flow.
"The paper that sits on your desk is evil. If it's not on the screen, it can't be offshored."
Among the loan administration functions that might be ripe for offshoring are hello-and-goodbye letters to customers, payoff requests, foreclosure processing, hazard insurance tracking, ARM maintenance and index validation, and mortgage insurance administration, he said.
Scott Brinkley, executive vice president at First American Global Offshore Solutions, is a big believer in the benefits of offshoring work. But he says the industry is still evolving.
"Technology has become a great enabler of offshoring," he said. "Moving processes offshore has become much simpler."
He also advises lenders to avoid moving "high-risk, customer facing processes" to overseas offices.
To make offshore strategies work, he says top executives need to sell the idea to the entire company and make sure managers "buy into" the goals and tradeoffs. (c) 2008 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/