Growing mortgage servicing rights volume too quickly or offshoring the customer interfacing-function without appropriate home office controls in the U.S. can create operational risks that spook investors, analysts say. Still, it's cost-effective when performed correctly.
Mortgage players are gobbling up MSRs left and right, so much so that the market experienced an intense bidding war for Residential Capital MSRs out of bankruptcy, with Ocwen Financial (OCN) and Walter Investment securing the winning bid.
Diane Pendley, managing director at Fitch Ratings, said offshoring is not a new concept for servicers, but ratings giants do evaluate the quality of servicing handled by financial firms overseas. She suggests that having the wrong controls over offshore operations or the wrong type of servicing functions abroad can cause problems.
An example of such a situation would be sending 80% of a firm's servicing overseas and expecting the remaining 20% workforce in the U.S. to be able to take over the work load should it become necessary.
Having the customer-interfacing function overseas also can lessen the quality of loan servicing at a time when both ratings giants and the government are expecting quality point-of-contacts within servicing shops to handle borrowers. Still, Pendley said there is nothing in the mass mortgage servicing settlement designed to resolve legacy loan servicing issues that specifically prevents servicers from sending customer-centric work overseas.
"These borrowers are needing someone who is empathetic and can understand and communicate well with them so they can work through these issues and problems," Pendley said. "However, the biggest problem we see is one of stability where you have a large percentage of a customer-interfacing function being done offshore where if something were to happen at that location, the onshore facility very simply could not fill that gap," Pendley told HousingWire.
Pendley recognizes that "you have to have volume to make those (servicing fees) work." And some servicers make those fees work by simply sending work overseas to cut overhead expenses, she explained. "That's what we feel is a significant risk," she added. "We don't think that offshoring borrower contact is the best solution for resolving these issues."
The recent MSR buying spree prompted a Fitch update. The ratings giant announced this week that it maintained Ocwen's negative servicer 'rating watch' after concluding "Ocwen's rapidly growing portfolio relative to the subprime industry and its offshore staffing strategy may pose challenges to an orderly transfer of servicing from Ocwen if a transfer were necessary at some point in the future."