Outsourcing Boom

Study looks at savings, growth in offshore outsourcing
By COCO SALAZAR
4/27/2005

Despite some opposition, the residential mortgage industry has followed the national trend of sending some functions offshore. And a new study says the trend will only gain momentum -- with a five-fold increase expected in outsourcing to India by mortgage companies during the next five years.

The study, co-authored by India-based Trinity Business Process Management Pvt. Ltd. and Avendus Advisors, analyzed the trend toward delivering vertical, domain-focused, outsourcing and offshoring solutions to India by the U.S.-based residential mortgage market.

Trinity is a subsidiary of a U.S. based provider of technology-enabled business process outsourcing and information technology delivery solutions to financial institutions, according to the announcement, and Avendus is a full service investment bank focused on IT services and outsourcing markets.

One of the key findings of the BPO Opportunities in the US Residential Mortgage Market research paper was that the offshore addressable business process outsourcing market size for the U.S. residential mortgage ecosystem is in the range of $6 billion to $7.4 billion.

In India, the existing U.S. mortgage processing outsource market is approximately $150 million, employing about 7500 people -- a mere fraction of what is anticipated, according to the announcement. The co-authors reportedly estimated that market will grow to approximately $1 billion over the next five years.

Offshore-based outsourcing is expected to generate cost savings in the range of 30% to 50%, the researchers said.

"We believe that the future growth of BPO will be driven by an increased focus on domain-specific, vertical processes that provide not only cost savings, but other long-term benefits in the areas of productivity and capacity management for the client," said Francesco Paola, a Trinity vice president, in the prepared statement.

One of the many companies that has jumped on the offshoring trend along with the estimated 40% of U.S. companies is Florida-based Ocwen Financial Corp., which claims its 3,000-member workforce in India allowed it 15% cost savings through its 40% business growth last year.

The topic of offshoring had a panel session dedicated to it at a recent servicing convention held by the Mortgage Bankers Association, and Standard & Poor's has also brought light to the practice by deciding to widen the scope of its review on residential mortgage-backed securities servicer ratings to include closer scrutiny of outsource vendor oversight and financial arrangements.

But, offshoring has its disadvantages and opponents.

While backroom functions are the "most appropriate" for overseas placement, consumer contact tasks such as "voice-based, call center activities in India have not produced good results for either side," according to Nicholas Woodcock, senior vice president of Global Realty Outsourcing Inc.

Plus, worries of domestic job loss, terrorist attacks and concerns of the misuse of delicate data collected and stored from mortgage transactions are reportedly some issues that have prompted many states to float anti-offshoring bills.

CNN business commentator Lou Dobbs is a constant critic of outsourcing abroad. On his show, Lou Dobbs Tonight, the news anchorman can often be heard hawking his book, Exporting America: Why Corporate Greed Is Shipping American Jobs Overseas, and featuring opponents of outsourcing.

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