Filed under: Domestic Outsourcing, Mortgage Industry Trends — admin @ 5:28 pm
Mary Kladde
Today’s MBA Newslink contained the following…
Offshoring, Outsourcing Poised for Growth
NEW ORLEANS–The outsourcing and offshoring sectors, in both captive and vendor models, appear ready for even more business as it matures beyond its primary existence in India. Despite inherent operational challenges, it may be the best time for the mortgage industry to consider its adoption.
I agree with the outsourcing. Numerous stories have reported lately that lenders aren’t able to maintain back office fulfillment and operations in house due to reduced originations and the continued need to cut operating costs. However, offshore outsourcing in an industry that is inherently complex, indigenous to the US economy and is currently undergoing nearly unprecedented regulatory investigation and changes is not the answer. Even if the industry weren’t in its current state of flux and licking the wounds that resulted from the recent bust of inflated appraisals, adjustable rates and reduced lending quality, any outsourcing of sensitive personal and financial data offshore just isn’t smart, even in a stable industry.
I have outlined my argument in support of domestic outsourcing - outsourcing these sensitive and crucial back office operations to experienced, onshore mortgage industry professionals - several times, including here and on my business web site here.
I believe, if the mortgage industry new what was good for it and was really as concerned with quality in lending as they should be, the headlines should start reading “Onshoring, Outsourcing Poised for Growth.”
Filed under: Domestic Outsourcing — admin @ 2:12 pm
Mary Kladde
“Focus on your core competencies and utilize the core competencies of others to your advantage.”
Lenders, like any other savvy business professionals, should focus on their core competencies and not risk the quality of their pipelines by banking on limited experience or trying to manage multiple mortgage operations and processes in-house if that is not their area of expertise. This is a tried and true business strategy, as is the outsourcing of operations that fall outside of a business’ core competencies.
In the mortgage industry, outsourcing makes sense for small lenders who do not have the resources to keep certain processes or experts in house. However, lenders should take care to outsource the processing of this sensitive information to industry professionals who have the experience to manage different loan products and aspects of the lending process, and who have current and up to date knowledge of industry standards, regulations, and compliance issues that affect their area of expertise. In addition, they also usually have the latest and greatest software and technology needed to manage their field of expertise.
Although some large lenders have tried offshore outsourcing for some aspects of the loan cycle, with the recent market problems, increasing regulatory focus on the lending process and an industry wide call for “a return to quality”, lenders need to reassess whether or not saving money on the front end by offshore outsourcing is worth the costs and risks on the back end.
Some things just don’t outsource well offshore - mortgage loans are one of those things. Consider:
1. The U.S. mortgage industry is a creature indigenous and unique to the U.S. economy:
It is at every point and in some way intersecting with state and federal guidelines and regulatory bodies throughout the entire loan process. Everything about the mortgage industry in the US would seem to require some level of knowledge about the specific state and federal provisions covering lending practice oversight. When considering outsourcing, your focus needs to be on ensuring that the outsource provider selected cannot only understand US state and federal requirements, but must also be able to communicate any needed actions in an efficient and expedient manner.
2. Language barriers are hard enough without adding industry specific details that are consistently changing.
Mortgage lending and all the surrounding rules and regulations are difficult enough to explain and describe in our own native tongue with a general understanding of and the right to homeownership. Foreign data processors are fundamentally at a disadvantage trying to understand how it all works in a second language.
It is very difficult for those having very little, if any, concept of owning their own home to explain the benefits and requirements of a mortgage.
3. Is exporting sensitive consumer and financial data overseas a wise practice?
United States consumers have been plagued by identity theft at staggering rates over the last several years. Distributing sensitive information into areas not completely under the control of stringent domestic regulations and US oversight “can be” an unnecessary risk.
Lending processes should be outsourced to domestic specialists with the experience, industry specific knowledge, and domestic expertise necessary to ensure that quality is maintained throughout the life of a loan.
Outsource? Yes. But never sacrifice quality to save money on the front end. It is far more costly to clean it up on the back end, as our current situation clearly demonstrates.
