By JANIS MARA
Stanley Varghese, an REO sales consultant for West Palm Beach, Fla.-based Ocwen Loan Servicing, contacts brokers to get opinions on the value of bank-owned foreclosure properties, has the properties cleaned and repaired, and arranges showings — and does it all from Mumbai, India, some 7,800 miles from New York City.
Varghese is one of a growing number of third-party workers in other countries working with home loans and distressed properties for U.S. financial institutions. Foreclosure processes, loan servicing, loan modifications and loan processing are increasingly being moved overseas in an effort to cut costs.
The practice is formally known as offshore outsourcing, a $50 billion-a-year industry in which U.S. firms use third-party companies in other countries to perform specified services.
In just one example, Bank of America has third-party workers in India and Costa Rica performing loss mitigation, according to Michael Gross, the bank’s managing director of loan administration loss mitigation. Gross testified on the subject at a hearing on loan modifications held Feb. 24 by Congresswoman Maxine Waters, D-Calif.
Given the bank’s status as the country’s No. 2 mortgage originator — with a 23.6 percent market share as of Sept. 30, 2009, according to Inside Mortgage Finance — the impact of those decisions may be especially significant.
Chase Manhattan Bank and Citibank also farm out some work overseas that is related to U.S. home loans, said Joe Greco, director of the Institute for Research and Education in Outsourcing at California State University, Fullerton, and author of "The Outsourcing Bible."
Representatives of those banks did not return calls asking for comment. Wells Fargo, the country’s No. 1 mortgage producer, has reportedly not outsourced business related to its U.S. home loans and distressed properties.
The reasons for offshore outsourcing are compelling. Because salaries in countries such as India and the Philippines are comparatively low, banks and financial services companies can realize impressive savings by moving jobs there.
More than half of the financial institutions surveyed by Deloitte & Touche USA in a 2007 study saved more than 40 percent compared with the onshore costs for each business process they outsourced offshore.
In some cases, companies "only pay those people (workers in other countries) a few bucks a day" said George Duarte, who heads up the government affairs committee of San Francisco’s East Bay chapter of the California Association of Mortgage Brokers.
In contrast, the typical U.S. mortgage loan processor earns in the $34,000 range annually and loan servicing clerks pull in around $30,000 a year, according to Salary.com.
"By offshore outsourcing, they (financial institutions) save a tremendous amount of money. Their salary levels are 20 to 25 percent of ours. Loan processors here in the United States have lost their jobs and are either out of the business or unemployed, and the people overseas are doing the jobs," said Duarte, a mortgage and real estate broker who heads Horizon Financial Associates in Fremont, Calif. …CONTINUED
Outsourced processes Duarte has noticed include "your short sales, your loan mods. (Some companies) have already moved these things offshore. If people are looking to get their loans modified, we’re hearing they are calling and getting people in India and Costa Rica."
A colleague agreed.
"I know (offshore outsourcing) is very commonplace in loan servicing and in some of the loan modification that is going on," said John Holmgren, spokesman for the California Association of Mortgage Brokers and founder of Oakland, Calif.-based Holmgren & Associates.
"Clients will call up with a servicing question about a loan we placed for them, saying, ‘I had a question and I ended up talking to someone in the Philippines,’ " Holmgren said.
"As far as the front end, I have not seen application processing outsourced. In the broker world, we have not observed that," the mortgage broker said.
"That part’s not going to go because you need human contact and someone who has the creative skills to put a package together," said Greco.
"That’s their core competency. You don’t want to send that overseas. But that backroom work — that tedious checking of information and calling people for missing information — that’s what is going."
While some banks and financial institutions may be embracing the approach, there’s no sign that real estate brokerages are doing so, said Realtors contacted for this article.
"No, that’s not happening here," said Anna May, a Hayward, Calif.-based Realtor who has been a California real estate licensed professional for nearly 17 years.
Some forms of offshore outsourcing, such as manufacturing in China and software design in India, have been around for decades. Some services related to residential lending reportedly started going offshore about two years ago, around the time Varghese started working for Ocwen.
The company offers products and services related to residential and commercial mortgage servicing, with employees in several U.S. locations as well as India, Uruguay, Germany and Canada.
"We handle foreclosed, or REO properties," said Varghese. "We go to the property and see if it is vacant. If it is occupied, we negotiate with the tenant. We offer them a cash-for-key amount. If we can’t negotiate with the tenant, we start the eviction process.
"Once the property is vacant, we have a broker work for us to look at the property and see what needs to be repaired. Also, we have an evaluation of what the property is worth right now. Then our broker shows the house," Varghese said. …CONTINUED
Ocwen’s mortgage services segment provides professional services across the lifecycle of a mortgage loan, including origination, servicing and resolution of loans and supporting delinquent and defaulted loans, according to company regulatory filings.
The company has longstanding relationships with some of the leading capital markets firms, commercial banks and lending institutions, the filing said. The firm did not name any of its customers.
While there are U.S. regulations governing offshore outsourcing, "they are pretty broad," Greco said. Mostly the regulations emphasize that banks and their third-party providers must follow the law.
"The general view is that the bank is still responsible for ensuring compliance with all laws as if the functions had not been outsourced, including privacy," said Andrew Gray of the Federal Deposit Insurance Corp.
A financial institution must identify and control the risks arising from a third-party relationship to the same extent as if the activity was handled internally, according to a financial institution letter from the FDIC.
Though offshore outsourcing related to U.S. home loans is growing, apparently not every bank has embraced the idea.
Wells Fargo, the country’s No. 1 mortgage producer, does not offshore outsource loss mitigation or loan modifications, Mary Coffin, executive vice president of the bank’s home mortgage servicing, said at the Feb. 24 congressional hearing.
And there are some vocal critics of the practice. Duarte said he questions whether the foreign workers have sufficient language skills, education and experience to competently perform their assigned duties.
"Here (in the U.S.) you have people who are unemployed and are not being tapped to do it. It’s ridiculous — a complete disconnect," he said.
Greco, meanwhile, said that offshore workers could be used to perform low-skill work, freeing up U.S. workers to perform higher-level tasks.
"There’s a huge market for loan modification right now, but they can’t handle it because they’re backlogged. I’m suggesting you leave the lower-level jobs, such as checking to see that forms are filled out correctly, for offshore workers," Greco said.
Regardless of one’s position on the practice, one thing is for sure: Offshore outsourcing is on the rise. Or, as Steve Dale, a spokesman for Minneapolis-based lender U.S. Bancorp, put it: "Everybody’s doing that, aren’t they?"
Janis Mara is a freelance writer in Northern California.
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