BLOG VIEW: Business process outsourcing (BPO) has a bum rap in the mortgage industry. There are many myths about BPO that persist to this day, such as the ‘it always involves the offshoring of jobs’ myth and ‘there are gaps in BPO providers' security’ myth.Â
What business leaders often do not realize is that BPO, when done right, is more of a strategic advantage than it is a threat. Not only does BPO help lenders and servicers generate profits and grow their businesses, it also helps them provide employees with more promising career trajectories by allowing them to take on more challenging tasks.
Lenders and servicers that continue to buy into the many myths surrounding BPO don't realize that they are stifling their own innovation and thus possibly losing their competitive advantage. What follows is a list of the top myths plaguing the BPO industry – and how they are dispelled:
MYTH: My data is not safe offshore.
Given the current environment and the heightened regulatory oversight, mortgage lenders and servicers' top concern is data security. When it comes to BPO, many mortgage firms are quick to tag BPO as ‘unsafe’ and assume that even the most progressive BPO providers do not adhere to modern data security policies at their offshore operations.
The reality is that a credible BPO provider's offshore security measures are even more stringent than those employed onshore. BPO providers that offshore leave nothing to chance. Credible BPO providers must conduct regular SSAE 16 audits, have the minimum of an ISO 27001 certification, and perform regular Office of the Comptroller of the Currency (OCC) audits to ensure full compliance. Failure to prove that a BPO partner performs to this level places a mortgage operation in jeopardy – particularly considering how risk-adverse the market is.
Obviously, firms looking to outsource should conduct a very thorough due diligence review to ensure the BPO provider has met the minimum security standards in place. But the idea that a large percentage of BPO providers represent a security is risk is simply false.
MYTH: BPO providers don't understand my business and my industry.
BPO providers have had ample time to gain mortgage industry knowledge and experience. In fact, any reputable BPO company in the mortgage space will attract top-tier, veteran talent and be able to lead the conversation on emerging and evolving industry trends.
However, the ideal BPO partner is one that understands it must earn its stripes in the mortgage industry. If mortgage industry know-how stops at the executive level, it sets the stage for an operational disconnect and communication missteps.
What some in the mortgage industry don't realize is that a preferred BPO partner must also undergo regular assessments and audits to ensure it is up-to-date with the latest Consumer Financial Protection Bureau and U.S. Department of Housing and Urban Development regulations. Therefore, a successful BPO company will arm its staff with knowledge – from extensive domain training, to SAFE Act licensing, to participation in Mortgage Bankers Association certification programs.
A word of caution for firms looking to outsource mortgage originations: There are companies that offer mortgage fulfillment outsourcing but do not meet SAFE Act licensing and registration requirements. These providers should be viewed with a higher level of scrutiny, as it directly impacts the quality of the origination and increases the risk of noncompliance.
Although a trustworthy and dependable mortgage BPO provider will invest in mortgage-specific training, this does not mean that one mortgage specialist can handle ‘all things mortgage.’ A successful mortgage BPO partner will recognize that the very niche aspects of the mortgage value chain require additional training and specialization. By providing specialized training to mortgage BPO professionals and ensuring that each staff member remains focused on his or her department and tasks, a BPO provider can reduce operational risk and minimize conflicts of interest.
For example, a BPO provider that understands the mortgage industry will not have the same staff doing the underwriting and quality control (QC) oversight. It will have a clear separation of duties and will take QC outside of the management structure to ensure unbiased reviews.
Making a significant investment in training in BPO workers – including the associates – benefits all parties involved. Similar to any mortgage lender, it is common for BPO workers to start off as processors and then become underwriters, senior underwriters and ultimately, if desired, managers.
MYTH: BPO is about staff augmentation.
Lenders and servicers often incorrectly look at BPO as only being about ‘warm bodies’ and ‘fixing one's mess for less.’ Yes, business optimization is a core benefit to BPO, but it is only one aspect. The quality of people – and more importantly, the quality of the output – is critical.
Top talent paired with IT makes for a very powerful value proposition to help any organization's bottom line. Today, top-tier BPO companies are using the latest technology to help automate the entire mortgage lifecycle, from loan origination through servicing and default management. The best of the best also provide a pure outcome-based model, so lenders and servicers are only charged when the provider fulfills its goals. This motivates the BPO provider to seek out and utilize the most robust technologies available to help automate processes and deliver the best possible outcomes.
MYTH: BPO means work will move away from the U.S. to other countries.
Likely to be the most widely accepted myth held by the masses is that outsourcing takes local jobs away from the U.S. BPO does not always mean offshoring. There are many onshore BPO providers that create jobs right here in the U.S. For instance, most of Wipro's mortgage BPO facilities are located onshore and 71% of our associates are performing duties from one of six U.S. facilities we operate.
An offshore model can also serve to reinforce a ‘promote from within’ approach. While the offshore facility handles the day-to-day tasks without interruption, the mortgage company's in-house talent can advance their career paths and take on more managerial roles.
There are reasons why the mortgage industry is moving toward BPO as a key strategy for the future. Mortgage lenders and servicers need to reduce costs, expedite turn times and react quickly to market undulations all while managing tight operating margins and increased regulatory scrutiny. Having a strong BPO partner helps keep costs down and helps to address balance sheet concerns.
Further, BPO helps mortgage firms reduce the loss of market share by enabling rapid ramp-up or ramp-down in response to market conditions. In an ‘up market,’ a BPO provider will serve to increase profitability for the mortgage lender or service. In a ‘down market,’ a BPO provider will normalize volatility.
BPO can also help lenders and servicers take advantage of technology, tools and accelerators to enhance processes and add efficiencies. Also, when leveraging a BPO provider, a portion of the business risk shifts from the lender or servicer to the BPO provider; small mortgage companies can partner with larger firms with better balance sheets and insurance coverage.
When lenders and servicers take the time to better understand the opportunities presented by BPO, they can normalize the impact of market volatility and ensure business longevity. Those who buy into the ‘myths’ and shy away from BPO, however, are going to have a difficult time prospering in this very tight market.
Arjun Raman is associate vice president and Peter Butler is director, mortgage practice leader, of BPO at Wipro Limited.
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