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   ARTICLE   |   From Scotsman Guide Commercial Edition   |   February 2008

Outsource for Continued Success

Looking beyond the office will help maximize technology and resource investments

The conflict between production and operations budgets is something that every mortgage broker must tackle. Faced with this challenge, many brokers begin to wonder how outsourcing and off-site technologies can help.

Those who take this a step further often discover that embracing an outsourcing fulfillment-and-technology model can lead to improved loan quality, closing cycles and operational capacity, as well as reduced operational risk.

The most widely adopted of the outsourcing models for brokers is “contract processing.” Under this model, the broker sources, prices and places the loan, and the outsourcing provider does everything else to clear it to close. Using this model successfully has become a benchmark in our industry. If you are not already outsourcing, it may be time to consider how passing off certain tasks could improve your organization.

Getting started

With business-process outsourcing (BPO), brokers can extend the same type of networked software they use with their settlement services, automated underwriting systems and document engines to their operational systems. No broker organization is too small or too large to take advantage of this opportunity.

The model has evolved so that different loan functions can be outsourced as market or internal pressures demand. For example, instead of having to commit to outsourcing your entire loan processing operation, you may do initial verifications in-house and let your BPO partners order and follow up on appraisals. At other times, you can ask your vendor to perform larger blocks of work. In reality, what you outsource isn’t as important as the fact that you do.

Once you’ve embraced an outsourced processing model, you may also find greater operational scalability, which can help you handle any increases in loan volume.

To start using BPO, you simply need an industry-standard point-of-sale system, a standard loan-origination system (LOS) and a high-speed Internet connection.

Outsourcing vendors will usually provide you with financial guarantees regarding the quality of their work and can often get you up and running with limited or no capital expense. With the right BPO partner, brokers can quickly transfer their operational headaches.

Unlike other technology projects that you may have experienced, a BPO implementation need not be overly resource- or time-intensive. To the contrary, an ideal entry-level outsourcing solution targets specific functions or sub-functions and delivers almost immediate improvements in cost and quality.

Opportunities abound

Almost every aspect of the loan process can be outsourced. If you can define a process, and if you have an electronic version of the data that relates to it, then you can outsource that process. In fact, BPO projects can be as simple as outsourcing data entry or as complex as outsourcing your entire office.

Companies often underestimate the speed and granularity in which processes can be carved out of their operations. But after they start the outsourcing process, many brokers realize that there is little margin to be earned in many of the repetitive processes involved in fulfilling a loan.

You should be aware of your cost structure relative to industry averages. If you are, you can quickly identify opportunities for improvement through outsourcing.

When considering whether or not BPO is right for your company, a detailed analysis of your current processing costs can be an important factor in the decision-making process. Often, the outsourced solution will be dramatically more cost-effective than doing it internally. Without a benchmark, however, you can’t determine that.

If your company has recently undertaken or completed a major technology or infrastructure project, this will make it easier for you to collect the data you need to assess your BPO opportunities. At the very least, as you put together business requirements for future initiatives, you should consider whether or not the function in question can be outsourced at a lower cost or higher quality. If you’re skipping this step, you’re doing your business a disservice.

Benefits beyond cost

Labor arbitrage, or the money saved by deploying a lower-cost employee to do the job of a higher-priced one, is an important aspect of outsourcing but not the most important. Don’t look at labor arbitrage as the only driver behind your outsourcing strategy.

Although there are often significant and immediate cost savings, the advantages of outsourcing also include quality improvements, faster turnaround times and the freedom to focus on your core business of originating loans.

When you share the operational risk of your company with a BPO provider, you’re also buying peace of mind and the time to work on the things that make companies different -- customer service and executive leadership -- as well as a more flexible balance sheet, which may allow you to be more aggressive in all manner of market opportunities.

•  •  •

Regardless of your current technology systems or your personal feelings toward globalization, these forces are changing the way our market manufactures and delivers loans. Adverse selection looms for brokers not aggressively pursuing BPO strategies.

Brokers with a sound outsourcing strategy will likely be the ones who thrive this year and beyond.


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