Large originators and servicers have long relied on the efficiencies and cost savings of outsourcing for a long time, some going as far as building their own offshore facilities, known as “captives” among business process outsourcers, explained Jon Cleaver, vice president and practice head of mortgage BPO services at Wipro Gallagher Solutions, the Franklin, Tenn.-based mortgage subsidiary of the India-based global conglomerate Wipro Technologies. But now, vendors like Wipro and others are offering custom outsourced services, combined with loan origination technology to small and midsize lenders, he said.
“Whether it’s a large, middle or even community banking market, each group is going to have a specific need,” he said. “The more flexibility we can provide to each client, the easier we’re going to be able to meet that need.”
Approximately 25% of Wipro’s 120,000 associates work in its BPO businesses, while the rest focus on information technology in a variety of industries. Wipro has long provided mortgage industry outsourcing, but purchased Gallagher Financial Solutions in 2008 to acquire its loan origination system, NetOxygen. Now, WGS offers its LOS as a standalone technology, as well as a bundled package that combines back-office underwriting and closing services performed in outsourcing centers.
By providing both the technology and the outsourcing, workers at both the outsourcer and lenders have access to the same Web-based systems and workflow.
“Strategically, you are working with one vendor who has skin in the game and a deep knowledge of the process and the technology,” said Anil Raibagi, CEO of the Wipro Gallagher Solutions unit. “That helps you focus on your core business, which is originating loans and allowing your partner to deal with the back office.”
Mortgage outsourcers like WGS and ISGN, another global firm with mortgage operations based in Bensalem, Pa., typically pick up the process after a local loan officer has taken the application from a prospective borrower. The outsourcer can conduct any combination of underwriting and settlement services tasks, as well as closing and post-closing delivery. Some lenders chose to handle certain steps in the process and outsource others. Since both sides are using the same technology and workflow, the partnership is more integrated.
Small and midsize lenders use outsourcing differently than large lenders, explained Chaten Patel, executive vice president at ISGN, another provider of bundled technology and BPO services.
Small banks with volatile origination volume—anywhere from single digits to a few dozen loans a week—don’t want the overhead associated with full-time staff for underwriting, so they outsource it. They can pay either per closed loan or in stage-based pricing, where incremental steps in the process are paid piecemeal.
“The fallout ratio in this space is pretty high,” Patel said. “If they want to pay per closed loan, the price is a little bit higher, but if they want to pay per registered loan, then the price gets cheaper.”
Some lenders chose to list these costs on the good-faith estimate and HUD-1 as origination costs, while others roll that cost into the application fee. By outsourcing the back-office operations, Patel said small lenders can realize cost savings up to 30%.
It’s a different strategy for larger lenders, who tend to retain 60% of their expected volume in-house and outsource the remaining 40% of their volume.
“With market fluctuation they believe their volume will never dip below 60%,” Patel said. “We have commitments from them that 40% of their volume is coming to us or a definite number of loans and above that is the market fluctuation.”
When a large originator sees a spike in business, they outsource it to keep costs and turn times down.
ISGN offers two different LOS platforms, one for small lenders and another for larger clients. Both technologies integrate with ISGN’s outsourcing services. The company is in the process of bringing a new platform to market that combines the strengths of both platforms into a single browser-based LOS for both segments of the market, called Catapult.
In addition to the overhead cost savings, Patel said ISGN offers a guarantee on its underwriting services. “If an on-staff underwriter makes a mistake, there is no recourse because he’s your employee,” he said. “With an outsourcing arrangement, if we make a mistake, there is recourse available because we provide a guarantee on the underwriting.”
While lenders of all sizes are outsourcing mortgage originating, it’s not always happening from offshore facilities. Wipro has a center in Tennessee that handles mortgage work, including consumer facing call center activity, and another nonmortgage facility in Atlanta that won an award in 2009 for promoting job growth in the area. Likewise, ISGN has major domestic centers in Connecticut, Florida and Texas and satellite offices in Michigan, Georgia and Pennsylvania.
ISGN’s Michigan center in the Detroit suburb of Livonia was previously part of Fiserv’s loan fulfillment solutions, where tasks like broker price opinions, loss mitigation and closing and settlement services were handled. Since ISGN acquired the business at the end of 2009, it’s consolidated those tasks into its Connecticut center.
It would seem that ISGN’s presence in Livonia, an area with an unemployment rate near 12%, is coming to an end. But not so, Patel said. Instead, the Livonia center is being revamped to handle due diligence work for servicers dealing with high levels of borrower foreclosures and bankruptcies.
“In the long term, we are not pulling out of Livonia. We are looking to add in different types of services in Livonia,” he said. “That it was what we’ll be focusing on with the Livonia operation because we can get the staff and resources available at an attractive price and who want to work on a long-term phase in that Detroit area.”
Wipro also sees benefit in having domestic outsourcing, particularly in the mortgage industry.
“I still talk to people today where the minute you say outsourcing they picture some back office overseas location,” Cleaver said. “You’re seeing an evolution and an education and a maturity of not only the outsourcing from a vendor perspective, but also from the lender side of the house.”
Lenders don’t want to appear as if they’re outsourcing work overseas during a time of high unemployment, Cleaver said. “With everything that’s gone on the last couple of years, everybody’s sensitive about everything.
“From a lender’s perspective, it’s a sensitive issue,” he continued. “But from a long-term strategic analysis, you’ve got to do what’s right for the company and its longevity, as well as the shareholders.”
