Planning for Long-Term Survival Through Strategic Outsourcing

Pete Butler is Executive Managing Director and Business Unit Head for Wipro Mortgage Digital Operations & Platforms/Opus Capital Markets, Brookfield, Wis., a specialized risk management and quality control service provider for a wide range of participants in the mortgage and consumer lending industry. For more information, please visit http://www.opuscmc.com/.

Mortgage rates continue to bounce around, and we are seeing some uncharted territory in the discussion, relative to negative interest rates. The movement in rates has caused recent mini refi booms, straining resources with lenders, while also seeing changes in home values in pockets across the country, thus still an uncertain market.

Volume and capacity are significantly out of balance and that is creating today’s margin compression. Typically at this time of year we expect to see about 20% shrinkage in capacity…headcount reduction.

We all know that many processes within mortgage loan origination and servicing are licensed activities. Therefore, the onus is on service providers to closely monitor regulatory changes, advise lenders, maintain licenses and ensure compliant operations, whether onshore or offshore.  Yes, there is the ability to license offshore and leveraging this is an important factor as lenders scramble toward a variable cost model.

With changes from regulatory agencies, compliance audits have become more complex and frequent with each passing year. As costs for compliance mount, technology platforms must provide the necessary checks and balances, audit trails, loan-level reporting as well as the same in aggregate. Also, for voice operations, tools such as speech analytics are growing more popular for auditing front-office voice calls for compliance. As lending organizations face the evolving marketplace, they should carefully consider alternative methods of doing business. 

Furthermore, a highly competitive mortgage origination and servicing market adds pressure to revenue growth and margin fortification.  This too is compounded by the continued influence of regulatory oversight and expensive regulatory changes, such as HMDA and TRID, which continue to negatively impact margins.

Overall, the industry has relied too heavily on deficient technology platforms and outdated business practices. This can easily result in poor CSAT scores, and increased customer complaints while simultaneously increasing the risk of non-compliance.

The Solution

So, with the market challenging the profitability of lenders, it is critical to think of alternatives.  Many have tried or thought about the outsourcing of operational tasks to trusted partners in order to battle the cost of origination and keep SLAs inline.  A lesser known advantage is that with a capable partner, it provides an additional lever that allows for the load leveling of your business.  Yes, you can consider outsourcing the entire backroom, but typically with the need to handle the government loans, maintaining some level of back office is important.

Partnering with service providers that offer a suite of technology and end-to-end loan origination fulfillment services with solutions that standardize processes, minimize operational risk, enhance compliance, and deliver a superior borrower experience sounds like a tantamount task, but if you do your homework, you will find partners that match this criteria.. 

Lending institutions should look to recent developments in origination fulfillment services and servicing as a competitive advantage. Let’s be honest, there isn’t any such thing as “plug-and-play” services.  It takes the joint concerted effort of a partner that cannot just lift and shift, but also transform the business. This goes well beyond having a partner that provides seasoned headcount for manual intervention along the mortgage value chain, it requires an organized LEAN approach, with enabling technologies to provide the benefit of a holistic approach to originations and servicing. 

On the servicing side of the business, service providers can reduce the cost per loan boarded by 50%, including document classification and data extraction through the utilization of Intelligent Character Recognition complemented by Artificial Intelligence and using a providers’ domain expertise.  Yes, this is real and it exists in the market today.

Vetting Potential Partners

As lenders look to move their operations to a variable cost model, they should keep in mind that the three pillars of effective service delivery are people, process and technology. Partnering with service providers that prioritize these qualities will help lenders retain a competitive edge.

When lenders are vetting new service providers, there are Top Ten key questions that should be asked:

1.         What activities are you licensed to perform? Underwriting? Collections? Mortgage Servicing?

a.         From what locations?

b.         For which states?

c.         Are the sites bilingual

2.         How do you determine how to best serve the needs of the lender?  Is this done with an onsite study and does it include a technology assessment?

a.         This should be an onsite activity with both the lender and vendor partner.  The partner should have a cross-functional team comprised of subject matter experts, operations managers and six sigma black belts, would assess the client’s operations and submit a comprehensive report that identifies key areas of improvement, enhancement and change.

b.         This study should take two to three weeks and is critical to the outcome as both parties can make informed decisions

3.         Where do you source people and what are the standards? If the company hires seasoned employees primarily sourced through referral channels with the typical interviewing process and strict background checks, lenders should feel more confident working with partners in this realm.

a.         There are partners that will promise a certain level of talent, but due to time constraints will opt for less experienced associates, which leads to point #4.

4.         What training is provided to the new associates? 

a.         Is it standardized or customized? 

b.         To what degree is compliance training provided?

5.         Since our industry is reliant upon PII, don’t be shy about this area, and dig into the policies and business controls of the provider.

a.         What is done to ensure strict InfoSec guidelines that are better than adequate, with proof of compliance?

b.         Clean desk/White room requirements?

c.         White room?

d.         Mobile Phone restrictions?

e.         Lockers outside of the floor to ensure ease of adherence?

f.          CCTV monitoring

6.         What enabling technologies do you provide to clients in the industry?

7.         What is the ramp time and who will I be working with that will lead the project on the partner side?

a.         Life is about people, and so is business.  It is imperative that the partner provide information related to the candidate(s) so that you work with someone that you are comfortable with, has the skillsets and experience to pull off a quality transformation, lift and shift or collaboration for augmenting your operations.

b.         You will want to know when your provider expects that they will hit steady state

c.         What is the retention in the facilities where work is to be performed?

8.         What do you believe is the key mix of staff and vendor talent in an optimized solution?

a.         Whether origination or servicing, you will want thought alignment

9.         Please share recent market developments that you have met with solutions.

10.       Finally, how do you define success?

a.         What are the metrics from the providers perspective?

Compromising when answering the above questions is not an option. Your customers, whether retail or third party, are the life blood of your business and therefore you must have a partner that approaches the business with the same level of commitment that you do…and perhaps offer ideas that could further improve on interactions based on other processes or technologies that are available.

The mortgage industry is reaching an inflection point; over the next decade lending institutions can expect to see a number of changes that will drastically impact the industry. Specifically, they can anticipate that Millennials will participate considerably more in the mortgage marketplace as Baby Boomers and GenX types move away from mainstream and companies must need to adapt to this generation’s preferences.

The industry should also prepare to see the growing costs of participating in the mortgage marketplace will bring on more consolidation. Finally, the largest growth will come from alternative products such as construction, non-QM and CRA loans. Paying attention to the globalization of the market and influx of the Latino population is critical to longer term successes. Do you have Spanish docs? Spanish collateral materials? Bilingual loan officers?

Lastly, as the industry enters this new era of mortgage originations and servicing, clearly, partnering with the right service provider is crucial for long term growth. Planning is seldom convenient, but for a changing environments, it is crucial. As we exit the selling season and enter the budget season, now is the time to begin exploring what you will do next! How will you grow? What will cost containment look like in your organization? It is a part of determining how you and your associates with survive and thrive, whether originating, servicing or both you must consider outsourcing as one of the primary levers to your business model.

(Views expressed in this article do not necessarily reflect policy of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA NewsLink welcomes your submissions. Inquiries can be sent to Mike Sorohan, editor, at msorohan@mba.org; or Michael Tucker, editorial manager, at mtucker@mba.org.)