The mortgage industry has been conducting an all-out search for profitability for years. Now some companies appear to be finding it through outsourcing.
A survey by the Mortgage Bankers Association of America found that about half of all respondents use outsourcing in their servicing operations, and that they are significantly more profitable than those that don't outsource.
According to the survey report, outsourcers showed a net operating margin on servicing of 3.9%, against just 0.3% for those that don't outsource.
"While outsourcing appears to increase profitability, its impact on productivity was less clear," according to the association's announcement.
David Lereah, the group's chief economist, said this finding was surprising, and he offered a number of possible explanations. "Many of these firms may have just implemented outsourcing during 1995, so the full impact is not reflected in this study," he said. "In addition, we would expect that firms who outsource do so in an attempt to improve their productivity, which may already be low."
Other key findings of the survey:
Tax compliance was the function most frequently outsourced, with about one-third of respondents farming it out. Handling bankruptcies and foreclosures was next.
While smaller institutions used outsourcing less frequently, they tended to outsource their entire servicing function; larger ones farmed it out piecemeal.
Personnel, occupancy, and electronic data processing costs were about one-third lower for outsourcers than for others.
Outsourcers collected an average of $274 in fees for first mortgages, while others took in $213.
Mr. Lereah stressed that outsourcing was still relatively new. "We cannot overemphasize the need for mortgage lenders to conduct an in-depth evaluation of their business goals and strategic plan, weighing the cost and the benefits before establishing a partnership with another service provider," he said.
*
Thrift institutions continue to favor Freddie Mac over Fannie Mae when it comes to selling loans. A new survey by America's Community Bankers found that thrifts are selling about 27% of their loan production to Freddie, formally the Federal Home Loan Mortgage Corp., against 19% to Fannie, formally the Federal National Mortgage Association.
No year-to-year comparisons were available, but figures from other sources have long shown Freddie with an edge among savings institutions. The survey also had data suggesting this lead will continue - 22.7% of respondents said they planned to adopt Freddie's automated underwriting system, Loan Prospector, joining the 13.6% who already use it. For Fannie's Desktop Underwriter, the numbers were 10.6% and 17.6%, respectively.
Significantly, almost two-thirds of all thrifts now originate loans that meet secondary-market standards, and the figure is fairly consistent across all asset-size categories. This suggests thrifts are determined to keep open the option of selling to the secondary market even if they do not do so now.
