Overseas Role Here to Stay

A lively discussion about the topical issue of off-shoring jobs overseas ensued at a panel session dedicated to the subject at the MBA's Commercial Asset Administration & Technology Conference here, with the participants agreeing that the practice is a reality of doing business in a global economy.

Catherine Rodewald, chief information officer, Prudential Mortgage Capital, noted that they had "struggled with this a lot," considering that she has had calls from unemployed American information technology people who have been asking for jobs and saying that they have lost theirs to outsourcing.

The reality however is that "10 years from now, it will be here. It will be an extension of how we work as the economy becomes global," she said. Michael Merriam, a Standard & Poor's director, noted that in the servicing area services such as property inspection, tax services and appraisals have been outsourced traditionally and people have been comfortable with that because "they are not skills that you expect servicers to have in-house." Richard Carlson, a Fitch Ratings director, said that now "core competencies are being outsourced," functions such as operating statement analysis and borrower requests, for instance. These traditional servicer functions are going outside, which raises the question, according to him, "why are you outsourcing functions that you have traditionally performed and performed well."

Mr. Merriam said that he was skeptical at first about the outsourcing of functions such as operating statement analysis, wondering if it would still be possible for S&P to assess the servicer's skills. But he has realized that as long as the staff at the outsourced end has the expertise, does the analysis according to accepted formats, and the technology is in place, the outsourcing is likely to work.

Barbara Pereira, director, commercial business development, Ocwen Financial, is seeing a trend toward resource sharing. And she is hearing the term "build, operate and transfer" more, which means that instead of using overseas partners, companies are building their own facilities overseas.

For instance, Bank of America used the services of Infosys, a leading Indian software company, for such a purpose. "They're at a point where they [BoA] understand the risk. From the knowledge base perspective, you want to maintain your knowledge base," she said.

While there is always risk involved "whenever you do anything outside your comfort zone," the question here is how to mitigate it. In outsourcing situations, outsourcers should be aware of the country risk associated with different countries they are considering outsourcing to, such as political factors peculiar to various countries such as India, Ireland, China and the Philippines, which have emerged as prime outsourcing locations.

Another risk involved is "people risk" which takes into consideration questions such as "are my people going to be able to share with the other people."

Catherine Rodewald, chief information officer, Prudential Mortgage Capital, noted that from a technology perspective, there is a risk involved when offshore vendors are able to reach into a company's systems.

Deborah McKinnon, vice president for commercial/multifamily, MBA, who moderated the session, wondered if there are fewer opportunities to be found for outsourcing considering that the labor pool in the outsourced countries is being used up. Ms. Pereira responded that India, with a population of about one billion people, generates a lot of college graduates.

Outsourcing companies should be careful to hold on to people that they have trained. "When you are sharing resources globally, it is important to integrate them so as not to lose them," Ms. Pereira said. Mr. Carlson noted that time differences pose an additional challenge "when you have staff working when domestic staff is home sleeping," as well as cultural differences.

Mr. Merriam said that one thing he has heard is that on the residential side there is higher turnover of staff than anticipated.

Ms. Rodewald believes that India will be the "offshore outsourcing country of choice, especially for the high-value-added stuff." However, "India is getting expensive for other stuff," she said.

Randy Miller, director, business development and operations, CoreBrix, noted that "as a collaborative process, it is very expensive to do." According to Ms. Rodewald, some companies are realizing as much as 40% to 50% in savings from outsourcing, but an "all-in" cost is difficult to pick up.

Ms. Pereira noted that developments such as voiceover Internet protocol technology have also facilitated outsourcing. Touching on business continuity programs, Mr. Merriam noted that the residential side of the business is a bit different since entire functions are being outsourced, while in the commercial side certain elements are being outsourced which creates a "greater risk of losing control." And on the subject of whether the practice of outsourcing has peaked yet, he believes that while the servicers that are doing it now will continue with the practice - seeing that once they have done it and have the infrastructure in place, they have attained a certain level of comfort with outsourcing - there will not be too many new entrants into the outsourcing area.

Mr. Carlson believes, however, "Not that many servicers are actively outsourcing and it is too early to say it has peaked." In fact, more and more servicers are considering whether to outsource, according to him. He recommends that such servicers look outside India in order to achieve savings since wages have gone up considerably in India.

Mr. Miller is of the opinion that costs in India are "still at an attractive level" and that the country will be a provider of "more high-level services." Some factors to consider, suggested by Mr. Miller, in looking at a country as an off-shoring candidate are do the people speak English, the culture, government sponsorship of the practice and the talent pool available in that country.

Touching on the negative aspects that have emerged from outsourcing, Mr. Carlson said that Fitch's surveillance team has found problems with operating statements that weren't classified properly and "isolated incidents" with borrower requests not being completed, but nothing "overriding" has emerged so far. Ms. Pereira said that Ocwen has made efforts to manage the outsourcing process using the practice of Six Sigma process control (a technique that is popular in the manufacturing sector).

Responding to a question posed by Ms. McKinnon about the impact of cultural differences, Ms.Pereira recounted that when Ocwen first started with outsourcing five years ago, they would define a process for the people at the outsourced end. In one instance, even though a person at the Indian end knew that the process that had been outlined was wrong, she just followed it anyway.

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