A Compelling Strategy

A Compelling Strategy

A CASE FOR A HYBRID APPROACH TO OUTSOURCING

By SANJAY AGNIHOTRI, SOURCEPOINT

The mortgage industry has certainly seen its share of volatility and uncertainty in the past, but it’s almost impossible to have foreseen the market we’re experiencing today. Between historically low rates and a refi boom for the ages, coupled with capacity issues and a shortage of talented people, mortgage organizations have an extraordinary number of demands on their plate.

Throw in a global pandemic and sunsetting forbearance plans and foreclosure moratoriums, and you have an anything-can-happen scenario that rivals any Hollywood movie script.

There are multiple ways things could go wrong for lenders and servicers this year, and there are multiple strategies they can use to excel. One of the most compelling strategies is outsourcing work, either onshore or offshore. However, creating an ideal outsourcing strategy involves knowing your options and how they can work to the benefit of your business.

HOW THE PANDEMIC HAS CHANGED EVERYTHING

Due to the growth in outsourcing over the years, most mortgage organizations became familiar with remote work. Now, thanks to the COVID-19 pandemic, remote work has become common practice. The pandemic also fueled low mortgage rates, which in turn have led to enormous capacity constraints for lenders, a severe shortage of underwriters, and a need to combine underwriting with offshore support.

Outsourcing is not a new concept in the mortgage industry, but the number of tasks and processes that can be effectively outsourced to offshore vendors at lower costs has soared recently. In fact, there are fully licensed outsourcing partners capable of decoupling the entire underwriting chain and performing virtually any component of the process, from loan setup, income and appraisal component underwriting and lender-specific overlays to creating checklists, condition clearing, final approvals and more.

This provides lenders with the option to create a customized approach to underwriting that works best for their organization. A popular way to do this is by combining remote underwriters in the U.S. with licensed offshore support. By outsourcing pieces of the underwriting process offshore and utilizing offshore work hours, files move much more quickly through the pipeline, which has become more important than ever.

A FASTER, BETTER EXPERIENCE

There’s no doubt about it – how quickly you close loans is the biggest factor behind borrower satisfaction. That’s particularly true today, as the pandemic has accelerated demand from borrowers for a more digital mortgage experience. Consumers who previously thought that mortgages involved tons of paper are now realizing everything can be done remotely through their phone or computer. As a result, lenders must quickly engage customers and set their expectations.

A good outsourcing partner can help lenders lower their customer acquisition costs and improve the borrower experience by responding to borrowers through text messages early in the process, while they have the customer’s attention. Our own analysis has found that doing this can increase borrower satisfaction by as much as 90 percent while improving borrower retention rates by an average of 20 to 25 percent, without spending anything on marketing.

Outsourcing licensed loan processing and underwriting components is the other piece to accelerating loan production. The right offshore provider can resequence steps in a way that improves efficiency. This is achieved by automating clerical steps and leveraging human ingenuity to maximize borrower interactions and the customer experience. This gives lenders the ability to reduce costs and shave cycle times by 25 percent, often shortening the closing period from 30 days to just 20 or 21 days. Of course, borrowers are happier, too.

This strategy has tremendous compliance benefits as well. By outsourcing to a licensed offshore vendor and simplifying and automating work, a lender’s team can focus their attention on its core activities. This is important, because the number of compliance challenges lenders will face in the near term will only grow. Due largely to soaring demand, today’s lenders are more likely to experience backlogs, hold-back funds, and increased repurchase risks, not to mention reputational risk.

UNDERSTANDING NEW COMPLIANCE OBSTACLES

By far the biggest compliance challenge will likely involve foreclosure moratoriums, as uncertainty and unexpected changes are not going away for lenders and servicers. But there are other hurdles, including the new Uniform Residential Loan Application (URLA), which is scheduled to go into effect in February.

The new forms will require originators to “unlearn” past behaviors and adopt new procedures, which will take additional time and effort, at least initially. To make the adoption process easy, originators should give themselves at least a 60-day lead time before adopting the URLA on all loans. Another is to turn to the expertise of a proven third-party vendor that is already prepared to work with the new URLA form once it goes into effect, so lenders can hit the ground running.

Outsourcing can certainly help lenders with compliance. Assuming you choose the right partner, outsourcing can have transformational benefits as well. The key to success is partnering with a fully licensed vendor with technologies that have been proven to both accelerate production and keep lenders out of regulatory crosshairs.

First, it’s absolutely essential that the outsourcing vendor you choose should maintain licenses to perform complex processing and underwriting activities, both onshore and offshore, in every state in which you do business. Lenders can only use licensed vendors for origination and servicing activities, yet relatively few vendors have the licenses and certifications in all 50 states.

Technology is the second piece of achieving transformational change. The best, most mature vendors can help clients re-engineer, globalize, and automate work to achieve much greater efficiency and value, as well as the highest levels of customer satisfaction that generate future business and sustained success.

It’s pretty remarkable how much offshore loan processing has matured in recent years. For example, by blending artificial intelligence (AI) and optical character recognition (OCR) technology, modern post-closing technology platforms used by the better outsourcing vendors are now capable of classifying more than 500 document types and more than 5,000 data elements within minutes. These platforms are also able to leverage both standard and client-specific checklists and automatically route missing documents to the right people for curing. And they can be integrated with most loan origination systems for a quick turnaround.

To be sure, 2021 promises to be an exciting and challenging year for the mortgage industry, with plenty of plot twists in store. For most organizations, the ability to improve closing speeds and steer clear of regulatory trouble will depend on choosing the right provider and balancing offshore with onshore support. The right combination will be unique for every company. But once you’ve achieved it, you’ll be ready for anything.