OVER THE PAST DECADE, OUTSOURCING HAS EMERGED AS A CONTROVERSIAL--YET highly effective--strategy among businesses from all industries. Technology and service providers have empowered the mortgage industry to effectively manage the highest levels of production in history, often outsourcing non-core competencies, select value-chain activities or even remedial tasks to domestic and foreign workers. [??] A new trend is emerging among small and midsized lenders that want to mitigate the extreme fluctuations associated with the cyclical nature of origination volumes. These lenders, whose core competency is originating loans and not closing them, have identified outsourcing certain back-office processes as a vital key to their long-term financial success and future growth. [??] By eliminating the need to hire, manage and pay back-office staff and the expense of investing in the information technology (IT) infrastructure associated with these functions, lenders are choosing to focus resources on a profit-driving activity--originating loans--instead of a cost center--closing and post-closing. By eliminating the fixed costs of maintaining back-office functions in-house, these lenders find budgeting and long-term planning with a variable cost structure lets them more accurately project and build greater profits over the long term. [??] When analyzed from an activity-based-costing perspective, back-office functions clearly present an extremely logical and persuasive footprint for outsourcing. As an enterprise business strategy, outsourcing now presents lenders with a legitimate mainstream choice that will affect how companies are built and perform well into the future.
Who's doing it?
Mark Sims, director of wholesale lending for Fort Worth, Texas-based Colonial National Mortgage, sees outsourcing the closing and post-closing function as a key element of his company's focus on providing mortgage brokers with what he calls "a menu of services." As mortgage industry volume declines, Colonial National is differentiating itself from other wholesale lenders by building in the advantages of a variable-cost structure. At the same time, it is allowing brokers to choose how they work with the lender--as opposed to dictating processes.
"We are designing a menu of services that our customers, the mortgage brokers, can utilize to choose how they want to do business with Colonial National Mortgage, and the integral piece of that is allowing brokers the flexibility to do their own closing documents," says Sims. "We provide connectivity with an outsourced solution that allows brokers control of their own closing destiny."
Brokers can select from two options. They can order closing documents from Colonial's in-house team. Or, they can upload their documents to Lakewood, Colorado-based Guardian Mortgage Services (GMS), a division of Guardian Mortgage Documents (GMD), directly from their front-end origination system. Through GMS, brokers can order closing documents on any product Colonial National offers. Sims says GMS now manages closing and post-closing for the majority of loans originated by Colonial National--suggesting that brokers prefer the benefits associated with the outsourced solution.
Murfreesboro, Tennessee-based Cavalry Mortgage, a division of Cavalry Banking, turned to outsourcing as a way to increase its profitability per loan. Cavalry Banking is a community bank serving one of the country's fastest-growing counties, and Cavalry Mortgage customers tend to be first-time homebuyers or those needing construction loans.
With a growing--but finite--customer base, the lender determined that maintaining in-house back-office operations was inefficient. The company decided that to provide the service customers expected while managing fluctuations in volume it needed to outsource non-origination processes.
Dale Floyd, senior vice president at Cavalry Mortgage, notes the challenge for lenders of maintaining the right sized back-office staff in a cyclical business. …