BLOG VIEW: In recent years, the business process as a service (BPaaS) industry has made significant strides, especially regarding loan servicing. Historically, BPaaS focused on managing data entry or imaging functions, which provided for a host of benefits beyond just labor arbitrage. Over the last decade, vendors have continued to evolve and now provide an even wider array of services that yield substantial benefits for mortgage servicers that are not restricted to back office processing or customer service.
Fast forward to today, many BPaaS vendors are now also providing professional services to help servicers better manage their business at a macro level by leveraging subject matter experts (SMEs). Typically, these SMEs have various levels and types of exposure to the financial industry, such as investment banking or capital markets. Even more, the vast majority of SMEs have deep domain expertise in loan servicing from end-to-end. Because of their keen understanding of upstream/downstream impacts, servicers can quickly ramp up production with reduced training and a smaller learning curve.Â
Vendors typically deliver process improvements through specific methodologies, for example, Six Sigma. Additionally, ongoing training and continuous development of techniques is crucial to continually produce benefits. The goal is to maximize the servicer's investment by focusing on productivity and accuracy gains using statistical tools.
BPaaS vendors are also increasingly helping servicers automate processes. Through simple IT tools and limited to no technical staff, vendors are building out simple macros and developing repetitive, routine tasks that help servicers better utilize resources. As a result, many IT vendors within loan servicing are developing automated solutions to serve as permanent functionality.
While BPaaS vendors can certainly provide servicers with subject matter expertise, process improvements and automation, one of the biggest challenges that servicer's face today is maintaining compliance. Many servicers continue to rely on outdated technologies that are not up-to-speed with the latest compliance requirements, but combining a next-generation technology platform with the power of BPaaS will help servicers proactively identify risks rather than addressing them reactively.
For example, a sophisticated servicing platform that incorporates automated dashboards to eliminate the monthly manual reporting efforts would provide a servicer with a systematic mechanism for checking what its major risk areas are, and then how they currently stand in terms of managing that risk. If a servicer has a borrower who is on the edge of bankruptcy, then an automated dashboard would automatically prompt the servicer with how to correct this borrower's actions before it becomes a compliance issue.
With compliance needs constantly changing, there's also a greater need for analytics, and BPaaS vendors are leveraging analytics and data modeling to develop and support business strategies for improved transparency into the servicing business. These range from managing expenses and lines of credit and cash flow to day-to-day dashboards. Predictive modeling capabilities enable servicers to determine how a loan is going to function over the next five years, and what the borrower is going to do next based on economic conditions.
The potential cost savings of leveraging a BPaaS in conjunction with a next-generation servicing platform are also substantial, with an estimated 45% to 50% savings in technology, labor and administration costs. This operational control, scalability and access to seamlessly interacting technology at a fraction of the cost are critical strategies that can take even the smallest servicer to the next level.
As the servicing industry continues to evolve, one thing is certain – loan servicing BPaaS, transformative technologies and professional services SMEs are here to stay. Servicers are increasingly looking to outside vendors to offer up a different perspective and improve processes, and this is wise. By tapping into deep domain expertise and exploring recommended best practices, servicers will undoubtedly increase competitiveness through greater efficiencies and reduced costs.Â
Roshan Sethi is vice president of mortgage servicing solutions at ISGN, an end-to-end provider of mortgage technology solutions and services.