Magazine article Mortgage Banking

The Hidden Value and Complexities of Outsourcing

Magazine article Mortgage Banking

The Hidden Value and Complexities of Outsourcing

Article excerpt

CONTRARY TO SOME PERCEPTIONS, outsourcing is not all about cost savings--neither is it as simple as transferring a process to a vendor and forgetting about it.

The mortgage banking industry offers ever more extensive outsourcing opportunities. In the servicing world, nearly every process has the potential to be outsourced to highly specialized and successful organizations. But the journey to transfer an internal function to an outside vendor, partially or fully, is seldom easy.

Why outsource?

First, one needs to answer the question: Why outsource? The answer is more complex than economics. Frequently, outsourcing provides a servicer benefits that go beyond cost savings. The following are some examples.

Flexibility and expanded operational capabilities. Outsourcing increases a servicer's ability to take on new business or weather fluctuations in work volume. It allows for easier expansion and contraction of operations, because the servicer no longer relies solely on its own internal resources.

Access to specialized technology and operational platforms. Outsourcing companies usually focus on business-process segments where they can achieve great economies of scale through narrow but deep expertise. This allows them to invest in state-of-the-art, specialized technology and operational platforms that could be cost-prohibitive for servicers.

Better customer service. A servicer can leverage an outsourcing partner to, among other things, expand hours of operation, offer different products, improve key operational metrics and enhance technology solutions. These many benefits can be passed directly to the servicer's own customers--the borrowers--many times with a warm reception and great success.

Steps to success

Once a servicer determines it wants to outsource, the next big question is how to successfully transition a process from internal to fully outsourced.

Start with a plan. Just as it would with any other major initiative, this will ensure things go smoothly and help gain senior management commitment. Having support from one or more senior executives is critical for your outsourcing initiative to be successful. You don't have to plan every detail, but you do need to have a big picture of where you want to be over the next one to three years. Your vision will dictate many of your tactics, including the type of vendors and possibly the number of vendors you'll use. If you plan on outsourcing a large part of your operations, you may want to consider multiple vendors to minimize risks and maintain leverage with partners.

Use a proven vendor-selection process. This appears obvious, but is often where failures begin. The right vendor is one that will meet and complement a servicer's needs all around, from its corporate culture to long-term future needs. And once you've selected the vendor, don't underestimate the complexity of contract negotiations. It's best to set expectations upfront. Your ability to effectively manage your vendor relationship and performance will, in large part, be dictated by terms you agreed to in the contract.

Bring in the experts. The participation and input of your internal subject-matter experts, technology teams, seasoned project managers and operational leaders are critical. Besides smoothing the process, their involvement will give them a vested interest in making the vendor relationship successful. Outsourcing is a complex process that requires an iterative approach involving many different types of expertise and resources.

Monitor and nurture the vendor relationship. …

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