Mortgage servicing next BPO?

The mortgage servicing industry may still be in its infancy stage, but the pioneer in the management of mortgages in the Philippines sees the sector as the next BPO (business process outsourcing) opportunity.

According to BFS, the country’s first company to specialize in mortgage servicing and asset management, there will be a growing need for mortgage processing as the demand for housing is projected to grow. This goes in hand with an expanding consumer market stemming from an improving economy.

“The purchase of a residential home is the most important investment,” explains BFS president Federico Y. Cadiz. “With a growing economy, the opportunity to make this investment is made more available.

BFS is a pioneering multinational mortgage-servicing platform that combines functional competencies in mortgage finance origination and credit underwriting, loan servicing, default management, property management, and sales and secondary market development.

In a recent report, the Bangko Sentral ng Pilipinas (BSP) reported that total consumer loans grew 20.9 percent year-on-year at the end of September 2014, with residential real estate loans increasing by 24.8 percent in the same period to P79.8 billion.

Under a growth regime, lenders will manage and process an increasing number of loans and mortgage accounts.

As the volume of borrowers and loans grows, the costs to efficiently process these mortgages correspondingly increase.

“At some point, it makes sense to have a specialist do it,” Cadiz said.

He cites the experience in developed countries where financial institutions compartmentalize into specialized activities, such as mortgage servicing, to lend scale and to the process.

Outsourcing mortgage servicing makes sense because the service provider can leverage on its expertise, its processes and technology, and economies of scale. Mortgage servicing BPOs will be able to do the job in a more cost-effective manner.

“Our success in doing mortgage management in the country shows that the business works. The expected growth in the loan and mortgage portfolios of financial institutions is an opportunity for business process outsourcing companies in this specialized industry,” he added.

The growth of mortgage management as a service is already a trend in the United States where, according to a recent Financial Times report, private equity-backed mortgage servicing groups have been making steady inroads.

Wells Fargo, Bank of America and JPMorgan Chase service 46 percent of mortgage debt in the US. Non-banks meanwhile have purchased the right to service more than $365 billion of unpaid debt in the past two years.

Fortress Investment Group, a private equity and hedge fund group, predicts non-banks could service $4 trillion of the $10 trillion of outstanding US mortgage debt by 2017.