PERSON OF THE WEEK: Outsourcing is nothing new to the mortgage industry, but as the business landscape changes for originators and servicers, so, too, does the rationale for outsourcing certain functions.
To get a fresh perspective on what lenders and servicers should consider when making this sometimes difficult business decision, MortgageOrb recently interviewed Pete Butler, executive managing director at Opus Capital Markets Consultants.
Q: What should mortgage lenders and servicers consider when deciding whether to outsource certain operational functions?
Butler: Since most processes within mortgage origination and servicing are licensed activities, it is a service provider’s responsibility to closely monitor regulatory changes, advise lenders, maintain licenses and ensure compliant operations, whether onshore or offshore.
The ability to license offshore is gaining traction as lenders make headway toward a variable cost model, but not all states permit offshore licensing.
With an onslaught of regulatory changes in recent years, compliance audits have become more complex and frequent. As costs for compliance grow, technology platforms must provide the necessary checks and balances, audit trails and loan-level reporting. At the same time, lending organizations face an evolving marketplace, so, they should carefully consider alternative methods of doing business.
For years the mortgage industry has relied too heavily on legacy systems that are often deficient and outdated. This can easily result in poor CSAT scores and increased customer complaints while also increasing the risk of non-compliance.
With these market conditions creating challenges for 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 increasing cost of origination while staying compliant.
When making this decision, lenders should take a hard look at their cost of origination. They pay attention to the Mortgage Bankers Association’s data with regard to the average cost of originating a loan and question whether they are viewing all of the expenses as critically as they should.
Q: What are some of the lesser known benefits of BPO?
Butler: It is well-known how outsourcing can save lenders time and money, but there are other benefits they should expect when outsourcing with the right partner.
First, it provides an opportunity for lenders to address any staffing concerns in a tight labor market by allowing employees to reallocate their time, or senior/team leads to have more levers. This means that many employees can move from purely administrative tasks to value-add tasks, which can help the lender stay profitable and compliant. It also allows more time and resources for lenders to retrain staff so that they are able to excel at their job.
Second, this also helps the lender with scalability. Outsourcing allows them to grow with new staffing at a variable cost as well as hold minimum staff levels during times when their volumes might be are lower. This can be especially important in areas where companies have less access to the right talent, thus enabling their ability to maintain their employees in both busy and slow times.
Q: How can mortgage lenders ensure that data is secure when they outsource?
Butler: Data security is a major concern in all industries, and in particular, consumer-driven industries. Mortgage lenders should carefully interview potential outsourcing partners and confirm that they have secure business practices.
For example, if the outsourcer hires seasoned employees primarily sourced through referral channels with a standard interviewing process and strict background checks, lenders should feel more confident working with that partner. Some partners might promise a certain level of talent, but due to time constraints will opt for less experienced associates, therefore, clarifying the years of experience is a worthy topic.
It is equally important to ask partners about the type of training provided, including whether it is standardized or customized. If an outsourcer is going to have a lender use its origination or servicing system, how is that training going to be administered?
Lastly, lenders should not minimize the importance of the amount and type of compliance training is provided.
Lenders might also want to ask about other things, such as clean desk or white room requirements, cell phone restrictions, and lockers outside of the badge restricted floor. This demonstrates that a potential partner adheres to strict security protocols.
To ensure that data is going to be secure, lenders should not be afraid to ask tough questions. Even if the answers they get are not the ones they want, it is important to know on the front-end, before they make the decision about working with an outsourcer.
Partnering with an outsourcing vendor can be incredibly risky if lenders don’t choose the right one.
Q: What should lenders be looking for in a BPO vendor?
Butler: 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.
The first pillar is people. As with any partnership, it is key that lenders look for like-minded individuals and companies to work with. Lenders should know who will be leading their project in order to determine if they are a good fit.
The next pillar is process. In addition to assessing what a potential partner is doing to ensure security and compliance, it is also important to know how they like to conduct business, where they conduct business and what they define as success.
Finally comes the technology pillar. Lenders should look to partner with service providers that offer a suite of technology and end-to-end services with solutions that standardize processes, minimize operational risk, enhance compliance and deliver a superior borrower experience. This sounds like quite the task, but if lenders do their homework, they will find the right partner that checks all the boxes.
Compromising on any of the three pillars is not an option. Borrowers are the life blood of a lender’s business and therefore it must have a partner that approaches the business with the same level of commitment.
Also, the right partner will proactively offer ideas to further improve the lender’s business model, based on other processes or technologies that are available. A partner that provides more services and technologies that will complement the business, such as robotic process automation, artificial intelligence, chat BOTS, servicing oversight, default servicing, early stage collections – will often prove beneficial.
In these times where vendor oversight takes a great deal of time and resources, reducing the number of vendors by using ones with broader capabilities can provide additional side benefits.
Finding the right partner is not a task to be taken lightly, but if done correctly, it is well worth the journey.