Like most other American businesses, the mortgage industry faces intense competition and continual cost pressures. The labor cost savings offshoring offers typically encourage companies to consider outsourcing so they can continue to compete.
But a new study, called "Business Process Outsourcing: What the Mortgage Industry Players Really Think" by Ocwen Financial Corporation, found that is not the case with the mortgage industry. Management accountability (88 percent) and increasing customer expectations (85 percent) were the two greatest business concerns of the mortgagees interviewed.
The growing cost of human resources, usually a key driver for offshoring, was cited as the least concern by the group. This was true for smaller companies as well as companies that produce more than 2,000 loans a year.
The study, which appeared in December 2004, found 49 percent currently outsource at least one process. Only 27 percent cited cost reductions as a major benefit.
Those folks said access to state-of-the-art technology was the key benefit of outsourcing (51 percent.) Being able to respond quickly to market demands (48 percent) and the opportunity to convert a fixed cost to a variable one (44 percent) were also attractive benefits. The largest mortgage companies said increased throughput was their biggest outsourcing benefit (50 percent.)
How Outsourcing Helps Improve Customer Service
"Outsourcing has a rapid adoption rate," says Micky Linn, Executive Vice President of Sales and Marketing for Ocwen, a mortgage outsourcer. He says mortgage companies have embraced offshoring because it provides additional resources mortgage companies just couldn't afford if they had to hire them at home. "Or they can add extra capacity when they need it at a price they can afford," he says.
He says offshoring allows the mortgage companies "to have a more high touch relationship" with their customers. They can focus on these relationships and let the outsourcer deal with the follow-up and handling of the many required documents.
Even though Ocwen conducted its survey during the noisy US presidential election, only 20 percent of the largest companies felt employee layoffs would be a concern. But they were worried about increased customer complaints and the threat to their data security when they outsourced.
Four Rules for Successful Outsourcing
The study found mortgage companies that have been successful at outsourcing followed four basic rules:
- Established a clear strategic vision
- Reduced the risk by leveraging a quality improvement methodology (e.g., Six Sigma)
- Applied proven technology infrastructures
- Focused on the people factor (education, motivation, judgment)
The firms that do not plan to outsource don't want to lose control over the outsourced process, according to the study.
How the study was done: Ocwen interviewed 60 business leaders from a wide range of firms engaged in mortgage loan origination and servicing. Mortgage brokers represented 36 percent of the respondents with retail lenders another 28 percent. The remainder were mortgage servicers and correspondent lenders. Regional companies comprised 32 percent of the respondents, state-wide companies added another 31 percent, local comprised 20 percent, and national companies 17 percent.