Key Takeaways
- U.S. residential mortgage servicers are using offshore teams for critical functions, such as back-office tasks, as well as customer service, collections, and loss mitigation.
- Our servicer ranking evaluations consider the quantitative and qualitative factors offshoring provides.
- Although some residential mortgage servicers have transitioned certain functions back to the U.S. due to performance issues, we believe that many servicers will continue using offshore teams because of cost efficiencies and performance gains.
U.S. residential mortgage servicers have been using offshore teams to conduct business for some time now. This can involve the company either hiring third-party vendors and staff, or building its own in-house offshore operations. S&P Global Ratings has observed that the types of functions being offshored can vary widely, from administrative back-office tasks, such as performing quality reviews of data on newly boarded loans, to more complex responsibilities, such as call center functions related to customer service, collections, and loss mitigation. Several servicers combine both approaches, and many have indicated that the benefits they obtain from offshoring outweigh the risks. These benefits include lower costs, and the ability to recruit and train an educated workforce whose performance they consider in most instances to be similar to domestic employees. Most of these offshore operations are located in India and the Philippines.
Offshoring Is Factored Into Our Rankings
We consider offshoring in our evaluation when determining a servicer ranking. We analyze it and comment accordingly based on quantitative and qualitative factors that are reflected throughout a servicer's entire servicing operation. Still, we do consider individual positive or negative attributes in our analysis, such as if a specific vendor has excessive turnover. We also evaluate a servicer's vendor management program, the number of functions that are significantly offshored, and the servicer's practices to assess and monitor various risks that are inherent in using offshore resources. However, we do not take a position as to whether a company should offshore any functions.
Offshoring Continues To Offer A Solution To Staffing Challenges
Offshoring remains a viable cost-saving option for many residential mortgage servicers. Although some companies have transitioned certain functions back to the U.S. due to unsatisfactory performance, the servicers we rank indicate that they have been generally satisfied with their existing arrangements and some have even expanded the functions offshored.
However, some challenges have remained consistent over time. These include the need for more comprehensive training programs to acquaint offshore staff with mortgage servicing concepts and provide accent neutralization instructions, and higher management and staff turnover. The COVID-19 pandemic also revealed other challenges; some servicers faced more logistical difficulties in setting up overseas staff with the equipment they need to perform their functions versus domestic employees; and countries had different lockdown requirements that affected workflows.
Nevertheless, we believe that when conducted effectively, offshoring can provide many cost efficiencies and performance benefits to a servicing operation. Although not all-encompassing or an endorsement, we have observed that many qualitative and quantitative metrics we track for offshore operations are similar to those of U.S.-based staff.
As a result, we believe U.S.-based residential mortgage servicers will continue utilizing offshoring in the years ahead.
The analysts would like to thank Adam Dykstra for his analytical contributions to this report.
This report does not constitute a rating action.
| Primary Credit Analyst: | Steven L Frie, New York + 1 (212) 438 2458; steven.frie@spglobal.com |
| Secondary Contact: | Mark J Shannon, New York + (404) 989-7655; mark.shannon@spglobal.com |
| Analytical Manager: | Robert J Radziul, New York + 1 (212) 438 1051; robert.radziul@spglobal.com |
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