Outsourcing: Managing outside the boxDoug Thorpebudget, post-close outsourcing, secondary market loan delivery
All the troubling mortgage news these days sent a wave of
reaction throughout the industry. As was predicted, the sub-prime
bubble absolutely blew apart. Lenders of all sizes scrambled to
assess the impact and perform some damage control. But what else is
new? More importantly, what are you doing now? Despite the direct
earnings impact that comes with such a volume decrease in so short
a period of time, some lenders are viewing the slowdown as a
welcome pause. After all, many shops reported record high peaks
just two years ago, when systems and people were stretched to the
max. So, now is the time to dig in and regroup.
With fewer loan applications running through the pipeline, many
lenders have pulled out their strategic plans and capital budgets
once again. Marketing plans that fell by the wayside with
larger-than-ever expected volumes are now being re-evaluated for
immediate implementation. The old axioms of Business 101 are back
in vogue. Cost-conscious owners and executives have begun
aggressively assessing their core competencies and identifying key
staff members to retain in the face of shrinking profits.
None of this should spell gloom, however. What it does suggest
is simply a return to a more normalized business climate, where the
mix of refinance and purchase money transactions are in better
harmony. It also suggests a more consistent approach to business
analysis and operating efficiencies. One recurring theme is service
During the volume frenzy of the past, two interesting forces
were running somewhat opposite one another inside the mortgage
industry. First, the notion of post-close outsourcing was growing
among vendor firms willing to develop and package a service bundle
to support secondary market loan delivery. A number of reputable
and viable firms have either opened new business units or added
this package to their market offerings. However, with the huge
increase in loan volumes over the same period, more and more
originators found themselves simply too busy to consider a
significant operational change to outsourcing. The old adage about
not changing one's horse midstream made good business sense.
Now, with the market settling back, managers are also
reconsidering the outsourcing proposals that had formerly lain
dormant on their desks. Modern managers tend to want to see
bottom-line impact. Careful financial analysis is used to define
the proposition and determine its potential return. However, the
final analysis of operations outsourcing carries a special
dimension, unlike other, more routine corporate decisions. There
are several additional points to explore.
Outsourcing still (and always will) represent a significant
psycho-emotional decision for the senior executive. Once all the
cost-benefit analysis is done and all the numbers have been
crunched, the final decision will center on just a few key points.
The business manager struggling to balance the proverbial
"man-versus-mission" analysis will find himself asking the
-Can I really afford to let go of some of the people who have
carried this firm so far? Cutting fat in times of slim budgets is
one thing, but I probably need to consider cutting some muscle to
really make this outsource proposition work.
-If I go through with the outsourcing, can I trust the vendor who
has presented me with this opportunity? I do not want to lose
control of my back office. I need to know where things are and what
is being done.
-How closely can I work with these people to be sure my loans are
being handled properly and in a timely manner? Stuff happens, and
everyone is human, so how will errors be handled?
All of these questions deserve serious consideration and review.
While some golden rule would be nice to have to get a guarantee on
the answers to the above questions, the truth of the matter is that
these questions become personal choices. Anyone entertaining the
idea of outsourcing must be willing to make a committed decision
whether or not to move forward. Any form of fence-sitting will doom
the venture from the start.
Also, consider the technological impact of outsourcing. Or, said
another way, do not get caught in a situation where the technology
seems to be the key driver. After all, outsourcing of the
post-close process should be centered on getting the transaction
done accurately and within prescribed timelines. Truthfully, there
is only so much technology that can be applied to this equation.
Under current and prevailing delivery guidelines by all of the
major lenders, investors and correspondents, the proper handling of
the loan file itself is more vital than any data exchange or other
technological advancement. Yes, there are ongoing initiatives to
enhance and streamline the flow of mortgage documents. Yes, there
are efforts to make things less paper intensive. Yes, there are
proposed standards. And yes, most of the industry will welcome
electronic execution and delivery. But, reality suggests we are
still some time away from all of these opportunities. More so, the
adoption cycle of significant technological change has proven to be
slow and cumbersome in the mortgage world. In addition, without a
true standard of delivery, we are also subject to technological
busts. The dot com frenzy in the financial markets helped prove
that some great technological ideas might not survive without solid
delivery of true benefit to the user and customer.
So how can someone make an informed and prudent decision about
selecting an outsourcing services company? First, of course, do
your analysis. Make those careful calculations and evaluations.
Next, perform some serious due diligence. Check out references and
ask tough questions that cover your personal concerns about the
matter. Interview the management and the key personnel from the
vendor firm. Carefully review the outsource services agreement. If
the vendor you are considering cannot or will not provide a true
service-level agreement, select a firm who can and will. Lastly, a
prudent management strategy would be to design a trial period from
which a final decision could be made as to the vendor firm's
capabilities. Using a subset of actual loan originations to forward
to the outsource company for processing could prove invaluable to
the long-term success of the relationship.
For the last 150 years, economists and business academicians
have studied business cycles. Interestingly, there is likely no one
in today's world who understands the impact of cycles in business
more than a mortgage banker. Walk up to a mortgage banker or
broker, and the first few words out of his mouth will have
something to do with interest rates and predictions of what is to
come. The cycle we have just finished has brought us to a period of
slower volume and fewer transactions. Management decisions will
shift to cost control and ways to sustain the profit margin.
Nothing can impact those decisions more than a true visit outside
the box to consider outsourcing. Go bravely and cautiously, but
Doug Thorpe is president and CEO of Post-Close America, a
Houston-based operations solutions provider specializing in
mortgage outsourcing. He may be reached at (281) 768-6100 or e-mail