Privacy concerns clash with lower costs
By NEIL J. MORSE
2/25/2005

Mortgage companies in the United States that embrace offshoring, the practice of hiring workers in other countries (most often India) to perform customer service and "back-room" operations, boast of significant cost savings. But, they also tell stories of strict security measures deemed necessary to protect sensitive data -- and American feelings.

Offshoring was the topic of one panel session held this week at the Mortgage Bankers Association's National Mortgage Servicing Conference & Expo in Orlando, Fla.

Some 40% of U.S.-based companies have or plan to have offshore operations, according to estimates, and the mortgage industry is just catching up with that trend.

"It's an increasing fact of life," says Nicholas Woodcock, senior vice president, Global Realty Outsourcing, Inc., Stamford, Conn. The five-year-old firm enables companies to establish business operations in other countries. According to promotional materials, GRO also provides primary and master servicing functions on several hundred thousand mortgages each month and manages a $25 billion portfolio of mortgages.

Companies that choose offshoring can reap considerable savings. An engineer in India, for example, can be paid $10,000 a year, where an equally qualified U.S. counterpart typically earns $75,000 annually, often with better benefits.

One company steadily moving jobs outside U.S. borders is Ocwen Financial Corp., West Palm Beach, Fla.

Michael Short, an Ocwen vice president, likes the 15% cost savings from offshoring enjoyed by the company last year, at a time when business grew 40% for the financial firm. Short says half of Ocwen's 3,000-member workforce is now located in India, a number expected to grow.

The "most appropriate" job functions for overseas placement are backroom, says Woodcock, although certain consumer contact tasks have not succeeded, he admits. "Voice-based, call center activities in India have not produced good results for either side," he says.

Additionally political backlash has been rising as many state legislatures pass, or attempt to enact, laws barring or limiting employment offshore that could be based here.

Woodcock says 23 states have floated anti-offshoring bills but only a few have passed. Lawmakers are troubled by domestic job loss, but they also have mounting concerns that delicate data, such as those collected and stored from the mortgage transactions, may be at risk of loss or misuse in other countries.

Existing and expanded privacy laws in the U.S. (e.g. Gramm, Leach, Bliley; SAS70; Sarbanes-Oxley) have heightened attention to security issues, not to mention continuing worries about terrorist attacks.

In reaction to these social and political issues, American companies are severely restricting the work activities of their offshore minions.

"There are no cell phones on the floor -- no paper," reports Woodcock. "It's fairly sterile." Workers must store personal belongings in lockers before entering the work floor, he adds.

Short says Ocwen's Indian sites contain "no hard drives on the PCs. All the information is kept here [in the U.S.], not overseas." What's more, he reveals, Ocwen records all employee calls and each worker's activities are audited every three-to-five days.

Opponents of offshoring cite concerns about national and economic security.

"These companies are hurting the country to make more money and they don't even pass it on to consumers," complains one mortgage industry professional, who asked not to be identified. "And, what happens if there is another '911-type' event? How secure is all the data?" he asks rhetorically.

Nicholas Woodcock waves off arguments against offshoring. The trend will continue for years, he says, predicting opposition eventually will wane. "We want this to be a very boring decision."

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