Back room efficiencies

For many businesses, the technology, resources and skills required to manage back-end loan processing has become a significant burden on their operational efficiencies and costs. Outsourcing part, or all, of their loan processing needs is therefore fast becoming a key profit saving business strategy.

Outsourcing is not being viewed as simply a ‘quick fix’ solution either. Rather, the trend of separating loan writing from processing looks set to cement itself as industry practice as lenders, aggregators, mortgage managers and intermediaries all look to improve their competitive advantage.

The outsourcing trend

According to international outsourcing advisor TPI, outsourcing is becoming a more popular business strategy across all sectors. The value of new outsourcing contracts awarded in 2007 increased by 13 per cent around the globe – and the lending sector is no exception.

In the current tight lending conditions, a well-organised and responsive loan processing team is a key element to any successful distribution strategy. Lenders that get loan processing right stand to gain a real competitive edge in the market place.

Maintaining an ultra efficient back-office can be a strain on both capital and human resources however. That is why many lenders are now looking to partner with a specialist service provider.

According to Bruce Baker, head of sales with Stargate Group, Australia’s mortgage industry has seen a substantial increase in lenders looking for ways to reduce the cost involved in having to maintain their own operational systems and processes. Outsourcing is providing some with the answer.

“Many see greater value for their businesses in focusing on sales and marketing skills to maintain their market position and in seeking to streamline their operations by outsourcing back office functions to an accredited service provider,” says Mr Baker.

Mr Baker says the desire to outsource is generally driven by either high operating costs or a lack of suitably skilled and qualified industry staff, both of which are essential to maintaining a competitive edge and a solid brand.

“A deficiency in any one of these areas will likely lead to a breakdown in the overall process and can lower productivity, increase risk in the loan portfolio and damage a lender’s reputation in the market,” says Mr Baker.

Quality and consistency with back-end processing is also critical in supporting a lender’s product and pricing strategy. Outsourcing is increasingly being seen as a cost efficient way of achieving both.

Where the difference lies

For many lenders, the cost associated with loan processing can often be difficult to calculate as a result of unidentifiable processing and staffing costs, irregular work flows and added overheads.

Using a specialist service provider can help keep costs under control, particularly when it comes to ongoing IT maintenance, says Mr Baker.

“By using the service provider as their lending unit the lender will only incur a flat processing charge when a transaction is submitted and is progressed to a previously agreed status,” he says.

In return for paying a flat fee, the lender gains access to a processing unit with specialist staff and the latest technology platforms. High-cost skills can also be applied to critical areas where special judgment is needed to maintain quality assurance.

Specialist services are also proving to be helpful in building and maintaining customer satisfaction levels. This occurs through maximising the benefits of available technology to achieve consistency in the decision-making process, as well as providing a critical communication link between all stakeholders in the transaction.

“While loan processing performs a vital filter for the acquisition of loan assets for the lender, a motivated and highly skilled loan processing unit can assist in building high satisfaction levels with consumers and intermediaries leading to a positive outcome for the lender brand,” says Mr Baker.

The importance of choice

While outsourcing can be an effective solution to spiralling administrative costs, its success ultimately relies on the ability of both lender and service provider to form a working partnership.

Lenders need to give careful consideration to the business outcomes they are hoping to achieve in engaging a service provider. This includes consideration of whether or not the service provider is the right fit in terms of complementary policies, efficiency requirements and existing technology.

“It’s important to determine the technical ability and cultural fit of a prospective provider that best suits your business,” says Mr Baker.

Mr Baker says it’s important when choosing a service provider that lenders consider a range of factors: the available technology, the level of skilled staff, the provider’s service standards and their industry experience.

“An efficient loan processing unit is best served by a well-trained and motivated team supported by a sophisticated loan assessment and decision-making platform,” he says.

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DECISION TO OUTSOURCE

Jennifer Nielsen, CEO of X Inc, explains the decision to outsource components of the company’s mortgage processing needs.

Mortgage Business (MB): What prompted the decision to outsource loan processing?

Jennifer Nielsen (JN): The loan processing was an adjunct to the core business and as such we wanted to ensure we could offer the service without removing the focus and key resources from our primary business.

MB: What services do you use/outsource?

JN: We use an outsourced software platform for our sales and process our white label Economy Home Loan using a service [loan processing] provider.

MB: What impact has outsourcing your loan processing requirements had on your overall efficiency?

JN: It allows us to segment this part of the business and offer it as a ‘value add’ to brokers, without impacting on the delivery of key broker services or the current merger integration.

MB: What benefits does it offer your broker network?

JN: We have now integrated our service provider’s resources in-house – which gives brokers greater access to information on the progress and outcomes of loan applications. It’s a better arrangement, because while it is still effectively an outsourced function we can act as if it is in-house. This provides a far better service support to our brokers.

MB: How has outsourcing affected your bottom line/operational costs?

JN: It allows us to operate the business on a pure variable cost model, which is more efficient in the various points of the credit cycles.