Automating B2B Processes Through Outsourcing Companies
Automation tends to decline for post-transfer and post-closing processes.
However, outsourcing automation of those tasks can be an effective solution
- as long as firms are careful to ask outsource firms the right questions.
By Kyle Keller
With the advent of consumer-to-lender and lender-to-lender portals, such
as Loancity.com, ETrade, IMX Exchange and Ultraprise.com, information
pipelines have been constructed, automated and made more efficient from
the consumer to the loan’s ultimate funding point and from the seller
of bulk or flow servicing rights to the final investor.
However, the automation and efficiency of the pipeline tends to “rust”
when considering post-transfer, post-closing and post-purchase functions.
Regarding the movement of bulk servicing rights, such functions include
the delivery of collateral and servicing files via paper delivery or optical
imaging to the buyer’s specifications and the delivery of electronic
data in the buyer’s preferred format.
Tasks also included in post-transfer workflow are preparation, recording
and delivery of assignments to the investor, Mortgage Electronic Registration
Systems Inc. (MERS) or the government-sponsored enterprises, the execution
of note endorsements, the identification of a true and correct collateral
exception report, and the capture of pertinent data to cure the noted
exceptions and free-up loan-sale holdbacks.
From a post-transfer perspective, the functions include traditional back-office
functions such as shipping, government loan insuring, collateral document
tracking, HMDA data capture and delivery, and post-transfer compliance
audits to screen loans for special concerns, such as predatory lending
issues.
Currently, the processes are performed individually and overlap, resulting
in a great deal of duplicate data entry and inefficiency. Often, under-trained
or under-skilled staff - sometimes temporary employees - are thrown at
the task, compounding the problem.
Begging for attention
The performance of these functions has begged for attention. They beg for electronic operational systems designed to:
Why haven’t post-transfer and post-closing processes received greater attention? First and foremost, neither is traditionally associated with origination and loan sale revenues.• apply data collection and input efforts to all related functions to eliminate duplicate data capture and entry,
• standardize data input elements for consistency,
• incorporate field level edit testing to reduce human error,
• utilize optical imaging to allow for multiple users of the same document and eliminate paper backlogs, and
• provide customized client and internal management reports.
Anyone who has been in this business long enough realizes that front-end revenue drives the industry and costs directly associated with those revenues are more easily applied on a loan level basis and, consequently, are easier to “justify.” Post-transfer and post-closing costs have historically been attributed to that horrible sounding word to chief financial officers in the mortgage business - “overhead.”
Additionally, the consequences of not being efficient in the post-transfer and post-closing processes, for some reason, are justified simply as a “cost of doing business.”
What, specifically, are these “consequences?”
More often than not, the processes described above have only been addressed when the consequences of an inefficient delivery operation reach a crisis point due to screaming investors, secondary marketing departments anxious to move product, or chief financial officers who are looking to add liquidity and remove contingent obligations from the balance sheet.• Loan sale proceeds (and interest thereon) tied up in seemingly unrecoverable document related holdbacks.
• Letters of credit having to be posted due to missed certification or re-certification deadlines.
• Delivery penalties and repurchase obligations due to documents not being delivered in a timely manner.
• Increased per loan servicing costs resulting from higher payoff and foreclosure processing expenses.
• Inability to pool loans for securitization or other loan sale initiatives.
A possible alternative
As an alternative, outsourcing many or all of these functions seems to be an effective, if not the only, alternative. Of course, blindly outsourcing tasks can prove to cause even greater problems. Too often, outsource companies lack the expertise or devote inadequate experience and manpower to the data capture and management side of the tasks to be performed.
Additionally, an inadequate outsource company can cause management to feel like they have “lost control” of the process due to inadequate or infrequent reporting.
Finally, many lack the ability to send and receive data and generate reports in the electronic mode preferred by their client. In short, an ineffective outsourcing company or outsourcing plan can result in a problem that is larger and more expensive than before it was outsourced.
Effective outsourcing can transform the costs mentioned above from fixed overhead to per loan variable costs and save money and even create revenue, so it is important not to “throw the baby out with the bathwater.”
A client should demand that the outsource company create a plan to fully tackle the tasks at hand. The plan should include mechanisms to deal with loan level or data-field level exceptions and the trading of information necessary to solve the exceptions.
Questions to ask outsource firms
The client should inquire about the ability and the flexibility of the outsource company’s information technology system. Ask questions such as:
“Will your system speak to ours and deliver data and reports in formats preferable to us?”
“Does your system have tools to perform the tasks required (i.e. a county recorder database for assignment preparation and recording and document recovery)?”
“Does your system have the flexibility required to meet our special project-related needs?”
Finally, the client should expect to meet the management and staff assembled by the outsource company to capture and analyze data from loan files and be assured that they are knowledgeable, experienced and understand why the data is being captured and comprehend the overall goals of the process.
Too many outstanding data management support systems have been rendered useless by poor information gathering on the front end. The “garbage in, garbage out” attitude will become a reality.
Finally and, in the long run, most importantly, outsourcing a post-transfer or post-closing set of tasks should add insight and identify areas of improvement made in the pooling or origination functions of an operation.
The reports generated by the outsource company should be flexible enough to allow exceptions to be identified and broken down by elements such as origination source, loan type, branch, loan officer, collateral agent or seller. Areas or processes in need of training or reorganization can then be identified and addressed, further streamlining the entire process and driving that all important cost per loan down and reducing unnecessary overhead.
As delivery channels become more well defined and automated, it will be important for the established information portals and servicing traders and brokers to have a system in place or readily accessible to manage post-transfer and post-closing processes.
The result will be a “bundle” of services more complete and more efficient to offer their clients and, ironically, a marketing advantage on the “front end” of their operation.
Kyle Keller is president of Outsource Solutions, an outsource firm based in Dallas, and has 15 years of experience in managing transfer support, due diligence and post-closing support services for the residential and commercial mortgage industry.
This article was previously published in the April 2001 Issue of Secondary Marketing Executive
