Souren Sarkar, CMB of Nexval on Business Process Outsourcing

Souren Sarkar, CMB, is the president and co-founder of Nexval, a provider of technology-enabled mortgage services and fintech innovation for the financial services industry. He is a pioneer in mortgage business process outsourcing with more than 25 years of experience as a technology leader in the mortgage and banking arena. He is an expert at improving the performance and scalability of service-driven businesses using workflow automation. He can be reached at souren.sarkar@nexval.com.

MBA NEWSLINK: What is your outlook on servicing challenges in the coming months and into 2023?

SOUREN SARKAR, CMB: Right now, servicers are busier than ever. Between MSR transfers, helping borrowers who need assistance with their payments, and dealing with a rise in early-stage delinquencies, servicers are experiencing significant turmoil, which will continue in the months ahead.

It’s also likely that we will see increased defaults in the future. For a long time, there’s been a lot of hubris about the housing market and borrowers have been stretching themselves. When rates change and everybody pulls back, like we’re seeing right now, defaults are inevitable. The question is when.

NEWSLINK: Why might some servicers be cautious to outsource their processes?

SARKAR: For one, servicing is not a very modular business. In origination, it’s easier to outsource specific functions, at least if you have strong manual procedures. In servicing, everything is interlinked. Your outsourcer must be in lockstep with your business, which makes outsourcing a strategic decision that requires greater attention.

Another thing that makes servicers cautious about outsourcing is their servicing platform. Many servicers use legacy systems that are not very modular or properly geared for outsourcing. It takes quite a bit of IT work to make these systems available 24/7 and gear the system so third parties can work with them.

NEWSLINK: What are the actual risks of outsourcing?

SARKAR: Outsourcing risks are very similar to “insourcing” risks in the sense that you can hire the wrong people in either scenario. However, the additional risk with a third party is that you must ensure they share your company culture and values because your team and their team need to work together. There’s no room for an adversarial relationship. Keep in mind, too, that a servicer’s challenges of costs, capacity, and compliance are the same challenges outsourcers face too, which is why it’s critical to choose a capable third party.

You also must ensure your outsourcer has strong data security and is monitoring their use of borrower information, which is a high-priority target for cybercriminals. There are geopolitical risks, too. If you are outsourcing to a firm with offshore staff and that location shuts down due to weather or other events—like a pandemic—that’s a huge problem. Of course, servicers face these very same risks within their own operations, but by utilizing an outsourcer, they could be increasing them.

These risks exist even among very well-known outsourcers. Some, for example, have very strong financial expertise, but not compliance depth. In other words, one size does not fit all. Also, many smaller servicers will err on the side of caution and choose a very large, well-known outsourcer, but end up being a minuscule client and not a priority. No one gets fired for hiring IBM, but that doesn’t mean the work gets done.

NEWSLINK: How have BPO services evolved over the past couple of years?

SARKAR: Today’s servicing functions are easier to outsource because of technology, thanks largely to the impact that the COVID-19 pandemic had on the mortgage industry. It began with the ability to share desktops and evolved into integrated workflows in which an outsourcer’s work was enmeshed with a servicer’s internal systems. The next stage is embedding automation into a servicer’s workflow, which is rapidly replacing or augmenting what humans can do.

Today’s BPO services are evolving to a place where the distinction between humans and computers has become less important. With artificial intelligence, for example, it’s now possible to review data fields in documents for consistency without the need for human oversight. It’s not about whether you use technology or human staff, but how you complete a task with high quality and at a reasonable cost. The impact of automation on outsourcing is growing by leaps and bounds, and as systems become capable of enabling more automation, it will continue to grow.

NEWSLINK: If they have the staff, why would a large servicer leverage a BPO provider instead of keeping processes in-house? How complicated is it to make such a move?

SARKAR: Even if you have the staff to do the work yourself, the market has changed dramatically in recent months, which means the nature of servicing work has changed as well. It’s been quite some time since we saw a market like today’s environment, so while servicers have the manpower, they may not have the expertise they need to reduce costs and stay compliant.

Also, the value outsourcers bring to the table—at least the good ones—are highly variable staffing models, which allow them to distribute resources among their servicing clients. Good servicers are adept at shifting resources from origination to servicing and rely on certain techniques, as well as automation, to navigate these shifts.

Utilizing a BPO is not very complicated, assuming you have the right partner. But in the outsourcing business, we usually get a call only after the fire is raging, rather than when they see a glowing ember in the distance. The benefit of lining up an outsourcing partner earlier is to have some pressure valves ready when they are needed.

NEWSLINK: What should servicers be looking for in a BPO partner? What red flags should they be aware of?

SARKAR: You want a partner who has well-rounded experience and the ability to deliver on all fronts—knowledge, compliance, and IT security. You should also ask them to prove it. When speaking with a provider about outsourcing certain processes or functions, you need to find out if they provided these same services to other clients. Of course, there are those who will say “yes” before knowing the question, so it’s critical to know whether a vendor has the strategic capacity to build out resources for you, irrespective of what they did for another client.

It’s important to realize that, from the outsourcer’s perspective, what you learn from one client is not directly relevant to another client. A vendor could be very successful in one area of business for a client and fail in the same area for another client, simply because they don’t have the structure to transfer the knowledge internally. If a vendor is minimizing any of these challenges just to try to get the business, it’s likely that both parties will suffer later.

I want to make clear that outsourcing is not some magic bullet or some button you hit that suddenly makes your problems go away. An ideal outsourcing relationship is a partnership between the outsourcer and the servicer that requires ongoing communication and effort. For example, we regularly participate in synergy calls with our clients in which a client shares what they are seeing from the front line. But like any good relationship, you get what you put into it.

(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.)