The mortgage industry has continued to dominate both the print and broadcast media over the last year. Speculations abound regarding the health and future of an industry that has, up to this point, brought tremendous wealth and growth to the economy. Although a decline in the housing market has been predicted for the last two years, it is hard to find the evidence to prove it definitively. According to a recent CNN Money article, even in this tough market, they predict that more than 60 percent of the biggest markets are still going to see property prices rising. What is certain is that both banks and mortgage brokers are going to have to find ways to increase origination of loans, while trying to reduce costs simultaneously. In that regard, in a flat or declining market, identifying and executing a sound strategy that will help increase revenues while reducing costs is paramount to the success of the industry in weathering any downturn in the real estate market. Lest we forget, the health of the economy is contingent to some extent on a sector with trillions of dollars in revenues and assets. This is especially true for small- to mid-sized brokers trying to compete for a piece of the shrinking origination pie.
According to recent data, refinancing activity in the United States is up to nearly 44 percent of all loans and, as of early September, slightly more than 25 percent of all loans were adjustable. Both lenders and mortgage brokers agree that people who take out adjustable-rate mortgages are broken into three groups: those who are not concerned about higher interest rates, those who plan to sell their homes in the near future and those who cannot afford higher monthly payments. For this last group, they have to refinance and are at the mercy of the market. All of this indicates that there is still growing revenue for mortgage brokers and lenders in the overall mortgage industry; this is where moving processing offshore can help capture this revenue stream with lower costs.
Outsourcing of mortgage services helps to tackle both the problem of growth as well as costs. What outsourcing provides is the ability to scale up operations, provide robust customer service 24 hours a day and reduce overhead costs considerably. Over the last few years, we have seen the growth in outsourced providers of mortgage services. Although the model initially started with simple tasks and was more focused on telemarketing (lead generation), it has now moved along all aspects of the value chain. We have seen the emergence of companies that operate offshore facilities that can handle loan review, underwriting verifications, lien release, default management and investor accounting to mortgage lending and servicing organizations. Using the adage of "build it and they will come," these companies have spent considerable capital to build a full plate of services and, thereby, are able to provide a full range of services to banks and brokers at all levels. Companies have taken to acquisition strategies and sought out small- to mid-sized brokers to acquire both the client base as well as having the opportunity to prove that end-to-end mortgage processing can be done through outsourcing.
On a personal level, we have been surprised by the talent pool available in India and the complexity of work that can be done from India. A lot of large mortgage lenders have set up back-office operations in India, starting with inbound call center support. They have also built up to originating part of the loans from India, doing an initial underwriting and then managing the post-closing and servicing activities from India. We have hired experienced individuals in our own center to service some of these capabilities. It is estimated that the mortgage outsourcing industry in India alone will be more than $1 billion by 2010. That should provide a good indication on the capital expenditure, as well as the resources that have been placed offshore.
The outsourcing industry in India has matured, and now there are a lot of trained resources available on U.S. mortgage processes. Once a loan officer sells a deal to a prospective borrower, the file can be taken over by a processor in India. The processor can then order all the verifications and other documents to complete the file and submit it to the underwriter for clearing conditions on the file.
In the current environment, where more margins are shrinking and the overall banking requirements for both Alt-A and sub-prime loans are tightening, the importance of finding viable offshore options is vital. The offshore capabilities of these companies have improved tremendously and it is the opportune time for brokers and lenders to feel comfortable that offshore can and does work to help increase the bottom line.
Ramit Arora is with New York iTria LLC, a provider of integrated origination and processing solutions to the mortgage industry. iTria LLC has back office facilities for end to end mortgage processing in Hyderabad, India.