With an expanding regulatory framework driving greater complexity in back-office operations, some of which requires investment in additional staff, U.S. banks are increasingly outsourcing some of the onerous work involved in servicing mortgages to business process outsourcing (BPO) firms in India.
According to a report in the Wall Street Journal, citing data from HfS Research, BPO firms in India will handle an estimated $316 million in mortgage work this year – double the amount handled in 2009.
Currently, most U.S. banks are outsourcing only a portion of their loan serving operations. But as the government introduces tougher regulations for home loans, banks are expected to outsource a growing number of back-office functions – not only to reduce operating costs, but also to shift liability, and thus risk, to the BPOs.
But as the WSJ article points out, the U.S. banks will likely need to increase their oversight of the BPO firms to ensure that these operations are handled properly. That, in turn, could reverse the trend and result in them bringing those functions back home.
‘I think the lack of oversight so far away may be too much for these banks to handle, considering how badly they've handled overseeing their own staff,’ Ira Rheingold, executive director of the National Association of Consumer Advocates, told the WSJ.
The BPOs are not expected to approve foreclosures on loans, according to the report. Rather, their role will be to ensure the documents are in order before the banks sign off.
The trend has been a boon to the BPO firms – for example, major Indian outsourcer Tata Consultancy has seen its mortgage business revenue increase by about 40% in the past two years. The firm recently added 2,000 staff to the 7,000 it already has working on mortgages, according to the WSJ report.
‘The foreclosure process has become much more stringent, and that scrutiny has created a lot more volume for foreclosure teams [at banks],’ Arjun Raman, a business development manager at Wipro, told the WSJ. ‘But they don't have the capacity.’