Jon Gerretsen of Trelix on Outsourcing Trends
By MBA Insights Staff
October 1, 2018
Jon Gerretsen is President of Trelix, an Altisource business unit that helps lenders mitigate risks and reduce costs through customized mortgage fulfillment services. The views and opinions expressed in this article are those Gerretsen and do not necessarily reflect the official policy or position of Trelix, Altisource or any other Altisource business or entity. The foregoing content is not intended to constitute, and in fact does not constitute, financial, investment, tax or legal advice by the author, Trelix, Altisource or any other business or entity.
MBA INSIGHTS: For a while, back in the early 2000s, outsourcing was hot. Then for many it became kind of a bad word, particularly post-financial crisis. Now, we see companies once again moving toward outsourcing services. What's changed?
JON GERRETSEN, TRELIX: The drivers for outsourcing today are much different than those of the early 2000s. Today, outsourcing is more long-term partnership based and offers a variety of solutions compared to what was available in the past. Traditional outsourcing was mostly fueled by higher volume periods and refinancing booms. Overflow volume was outsourced to a limited number of providers in a standardized, one-size-fits-all, model.
The emphasis today is more about finding the right vendor to support your business model. Lenders are committing to longer-term relationships as part of their strategic plan to grow their businesses in a more efficient, cost-effective scalable infrastructure.
INSIGHTS: Are mortgage companies looking for a single outsourcing vendor that can do it all, or are they looking for specific services, possibly from multiple vendors?
GERRETSEN: More and more lenders are looking to consolidate their vendor relationships. In today's data driven manufacturing environment there are advantages to fewer handoffs as well as built in efficiency and quality gains by having one vendor partner manage multiple services.
INSIGHTS: What are the positives of outsourcing? Any particular reasons why one should consider it in this current market?
GERRETSEN: Retention of skilled employees in volatile markets is difficult. Outsourcing can provide a dedicated, predictable and scalable workforce. Performance and Service Levels are also key components in Statements of Work and Vendor Contracts, which provide certainties around production levels regardless of market conditions.
INSIGHTS: What specific services are you seeing mortgage companies outsource the most? Is there a reason for this trend?
GERRETSEN: Underwriting is typically the most outsourced fulfillment service, because it is the toughest role to recruit and retain. Underwriting usually has the biggest impact on lender turn times and is also the area that can cause the largest financial loss for lenders due to poor performance and overall quality in loan file reviews.
Recently, as costs continue to increase for lenders across the lifecycle of mortgage production, we have seen an increase in originators looking to outsource the complete end to end value chain from processing through closing. Vendors are able to provide significant economies of scale and cost reductions by essentially taking over the entire fulfillment process.
INSIGHTS: What are some of the risks of originating mortgage loans/fulfilling all mortgage services in-house?
GERRETSEN: Resource and capacity planning are the biggest challenges in today's market. Borrowers' expectations are ever increasing and competition in a purchase market is fierce. Lenders can lose key accounts by not effectively managing service levels and turn times. Staffing to manage and retain market share and control costs is a tremendous challenge for most lenders today.
INSIGHTS: In your view, how does outsourcing mitigate risk and in what ways?
GERRETSEN: As mentioned previously, there are contractual benefits from outsourcing that also provide reps and warrants around risk management. These include penalties associated with quality and production that add a layer of protection for the lender.
There are also indirect benefits to risk mitigation derived from outsourcing. Because vendors work with multiple clients, typically 100+, there is a virtual library of best practices available from the vendor that add depth to interpretation and implementation in an ever-increasing complex regulatory market.
INSIGHTS: For those outsourcing, do you have any advice or best practices to managing successful vendor relationships?
GERRETSEN: There are several keys to success for successful partnerships.
--Only work with those vendors that provide dedicated resources. All of the benefits achieved from outsourcing can be lost if you do not truly add resources that become part of your internal team and long-term goals.
--Lenders should come to the table with a predetermined minimum volume guarantee in mind. This helps you dictate the terms of the agreement around service levels and dedicated staff. It also demonstrates that you are a committed partner.
--Work with the vendor to provide resources that best fit your business model. If you are a Retail Originator that will require hi-touch telephony support, then make sure that is the strongest skill set of the folks being assigned to support your business. Conversely, Wholesale Lenders should demand folks that are experienced working with Brokers and Correspondents. Ask for résumés.
--Finally, support for outsourcing needs to be gathered from all areas of the business. Key stakeholders from every area in the organization need to be involved in the initial decision as well as the design, scoping, calibration and final implementation. Outsourcing needs to be part of the organization's business plan and not viewed as a temporary fix.
(Views expressed in this article do not necessarily reflect policy of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA Insights welcomes your submissions. Inquiries can be sent to Mike Sorohan, editor, at firstname.lastname@example.org; or Michael Tucker, editorial manager, at email@example.com.)