Outsourcing Tool To Ensure Profitability and Effeciencies in Troubled Times

INDUSTRY THOUGHT LEADERSHIP SERIES W N S G LO B A L S E R V I C E S
Mortgage Process
Outsourcing (MPO)
A Tool to Ensure Profitability and

Efficiencies in Troubled Times
web : www.wnsgs.com
email: mortgage@wnsgs.com
O C TO B E R 2 0 07
About This Report
The WNS Industry Thought Leadership Series delves into
key issues facing organizations contemplating or
implementing new operating models through outsourcing.
This series, developed in conjunction with noted industry
authors and practitioners, investigates the critical
challenges faced in key industry segments.
Mortgage Process
Outsourcing (MPO)
TABLE OF CONTENTS
Executive Summary 2
Introduction 4
Section 1 : Uncertain Times for the Mortgage Industry 7
Section 2 : Outsourcing Trends 13
Section 3 : Mortgage Processes and Their Scope for Outsourcing 23
Case Study : Top 20 Wholesale Lender 36
Section 4 : Moving Beyond Cost Savings 39
Section 5 : Developing the Case for MPO 49
Case Study : Top 20 Mortgage Lender / Retail Bank 56
Section 6 : Promoting Organizational Acceptance 59
Section 7 : Effective MPO Transition and Governance 67
Case Study : Top 5 Subprime Servicer 71
Section 8 : Emerging MPO Models 77
Case Study : Top 10 Mortgage Lender and Retail Bank 86
Section 9 : Key Findings 87
Appendix 90
Glossary 93
List of Figures 94
Footnotes 95
Report Sources and Reference Materials 96
About the Authors and Contributors 99
Executive Summary
Never before has the U.S. mortgage industry experienced such a dramatic need for new
operating models such as outsourcing. Mortgage lending firms have been forced to navigate
rough waters churned by the housing bubble, the subprime crunch, and a tighter lending
environment. Now lenders must explore every avenue to boost operational performance and
drive efficiencies. Increasing sophistication by mortgage process outsourcing (MPO)
providers allow opportunities for lending firms to combat these problems, but lenders are only
now beginning to explore the breadth and depth of provider services. Many lenders have yet
to grasp how to drive maximum value from MPO.
In the current business environment, the mortgage industry, more than any other, should be
focused on increasing efficiencies and controlling costs from outsourcing. The ongoing
subprime crisis, which evolved from a liquidity crisis, has forced at least 100 mortgage lenders
to close their doors. Even the September 18, 2007, reduction of the Fed Funds rate by a
half-point to 4.75 percent, while believed to spur markets generally, is expected to have little
effect on mortgage rates, especially in the short term.
Meanwhile, the industry should remain braced for declining origination volumes, predicted to
drop to less than $2.25 trillion from a 2003 peak of about $4 trillion, according to the Mortgage
Bankers Association (MBA). Lenders will also suffer from a lack of buyers on the secondary
market, who have lost their taste for illiquid mortgage securities. Fewer loans mean higher
origination costs per loan. Couple this with discounts and incentives to get qualified borrows in
the door and lenders are having a hard time turning a profiting and staying productive. Since
2003, loan officer productivity has decreased 40 percent, while origination costs per loan have
more than doubled, according to the MBA. The average income per loan this year is
anticipated to be under $250 from nearly $1,500 in 2003.
Outsourcing in the mortgage industry began with farming out information technology
functions to save costs, but the practice has since evolved to include increasingly detailed and
industry-specific business processes executed by companies with operations around the
world. The $20 billion business-process outsourcing (BPO) market will grow by nearly
20 percent between 2005 and 2010, according to industry sources. Within BPO, the highly
complex knowledge-process outsourcing, a part of MPO, is predicted to swell by a 50 percent
02
Subject to Copyright Limitations, ©2007, All Rights Reserved.
compound growth rate by 2010. Mortgage lenders, like other financial services firms, joined
the IT outsourcing wave but are just now experimenting with more complex forms of
outsourcing. They will be forced into this, however, if they aim to remain competitive.
With the business environment driving lenders to pursue MPO strategies, lenders must now
navigate the process of understanding what to outsource and how to best partner with a
service provider. This, too, can be a challenge, for two reasons. First, due to the siloed nature
of the U.S. lending business, experts working in one area are unaware of the opportunities
available to drive productivity in others. Origination-focused executives, for instance, are
poorly versed in secondary market processes or loan servicing. Secondly, lenders have
typically viewed outsourcing through the lens of cost cutting. The least expensive service
provider has historically been the most attractive, and the discussion rarely dealt with boosting
innovation and driving productivity. To get the most value from MPO, lenders must take a
holistic look at their mortgage processes and discuss with providers ways that an outsourcing
partnership will increase productivity and drive operational efficiencies. Organizations that flirt
with MPO will not obtain the same level of productivity and efficiency as those who
comprehensively evaluate scope - from the simplest to the most complex.
For the first time for this industry, this report takes a detailed and segmented look at more than
50 mortgage processes and assesses the complexity, implementation risks, governance
challenges and potential ROI.
However, shortlisting processes in scope is merely the first step. Moving beyond cost savings
into greater productivity and innovation mandates matching business process requirements
with process characteristics to develop a roadmap for change. Optimization only comes when
processes can be delivered end-to-end.
Developing a comprehensive business case, working to align the organization and setting the
stage for effective transition and governance are critical. And developing an MPO strategy
that can move to next generation models will provide for flexibility and growth.
Lending markets are inherently cyclical, and the industry will rebound eventually. The firms
that survive and those that thrive will be the ones that understand the promise of MPO and
how to use this important tactic to navigate these cycles, even when the waters are rough.
03
Introduction
Engaging other parties to deliver processes or tasks which comprise part of an organizations'
product or service value chain is at least as old as free enterprise itself. All but the simplest
businesses succeed by engaging others to provide at least a portion of what they will
ultimately deliver to their customers… often better, faster and cheaper... However in an
increasingly complex business environment in which markets are global, economies are
intertwined, transaction volumes experience extreme volatility, technologies change
overnight, regulatory burdens spiral, and legislation is often held in thrall by politics, the
decision to outsource one or more processes is far more complicated than merely obtaining
labor arbitrage
An industry under pressure

Nowhere is this more true than in the US mortgage industry. Credit liquidity and underwriting
challenges have radically changed the industry landscape in a very short period of time.
Concerns about product differentiation and market penetration have given rise to worries
about viability. In the rush to cope, and indeed thrive in a challenging environment, old ways of
working – fragmented, inefficient processes, ineffective infrastructure, limited scale – can no
longer be viewed as sacred cows. All tools promoting productivity and efficiency are now on
the table for consideration as the industry evaluates more efficient, resilient operating models.
But obtaining clarity – which processes to outsource, how to manage risk, how to baseline,
best practices in governance – is key to developing the right strategy.
This report seeks to demystify the outsourcing of mortgage processes or MPO within the U.S.
financial services industry in general, and more specifically in the mortgage lending business.
It drills down into the key concepts that must be considered by executives intent on making the
right decision and, equally as important, implementing for success.
Three business imperatives drive a change in mortgage operating

models
First, because of the siloed nature of the U.S. mortgage lending industry, few players are fully
aware of the complexities of the business end-to-end. Experts tend to specialize in one area,
becoming myopic relative to that function's importance to the whole, and its impact on other
processes, both upstream and downstream. The interrelationships between the various
moving parts required to effectively move a mortgage deal from application into the secondary
market, and on to servicing operation are not fully understood by the marketplace. To
underscore this point, research was not able to identify a complete typology of all mortgage
processes and their interdependencies when preparing this report. The lack of an end-to-end
roadmap, regardless of specialization, leads to disconnects when firms change or outsource
discrete processes.
04
Secondly, a historical analysis of outsourcing as deployed by the U.S. mortgage industry
reveals a focus on cost savings to the exclusion of other potential benefits. Research
suggests that mortgage lenders, like other players in the U.S. financial services industry, have
achieved significant cost savings – primarily through IT outsourcing, offshore software
development, and the completion of certain labor-intensive, non-customer facing jobs. All the
same, there appears to be limited focus on achieving innovation through implementing an
outsourcing relationship. Despite the fact that significant experienced talent has been
developed within outsourcing providers, lenders have not figured out how to leverage this
talent for their benefit. In effect, lenders have focused on the cost of specific process lines
within siloed business units. Rather than evaluating how outsourcing can have wider ranging
benefits such as transforming ways of working, differentiating products or speeding time to
market, buyers have remained mired in the numbers contained in contracts, missing out on
the opportunity to use outsourcing to innovate.
Finally, due to an increasingly competitive, fast-changing lending environment, lenders do not

have the luxury of re-inventing the wheel, sequentially learning through experience all the
outsourcing dos and don'ts that other industries have already institutionalized. They must find
a way to shortcut those lessons, adopting the best practices and capitalizing on the
experience of their outsourcing partners as change agents, or evaluating the right case study.
Because of the complexity and the volatility of the mortgage market, basing decisions on
broad, generic outsourcing headlines can be a recipe for disaster. Therefore, access to
expertise becomes critical.
Securing profitability and efficiency in challenging times

The over used phrase "necessity is the mother of invention" may be most apt as the mortgage
industry grapples with market corrections and structural challenges. Most change comes
from thinking out of the box to develop new responses to falling profitability, availability of
resource, and emerging technologies.
Although outsourcing in some form has been adopted in the mortgage industry for over 10
years, its application has been inconsistent and sporadic. Yet the opportunity to change the
fundamentals of the mortgage process delivery model are vast, given advances in technology
and the highly evolved capabilities of third party providers. This report was designed to help
the reader understand the drivers for implementation of mortgage process outsourcing, the
processes which can be transferred to a third party, and, most importantly, the steps the
mortgage lender must take to ensure success.
Mark Dangelo
Rick Grant
Amit Goyal
05
SECTION 1
Uncertain Times for the Mortgage Industry
Wake up call for the industry

No industry likes uncertainty. Uncertainty creates volatility. Volatility leads to fear. Fear
further spreads uncertainty. Just look at the headlines and media briefs published in MBA
NewsLink during one four day period in August 2007, and the level of uncertainty in the
industry becomes painfully obvious:
¿ Discount window loans shot up after the Fed eased borrowing conditions last week,
though a big chunk was soon repaid." - The Wall Street Journal, August 23, 2007.
¿ Bank of America Invests in Countrywide: Bank of America acquired a $2 billion equity
stake in Countrywide in a bid to bolster the confidence of creditors and investors in the
mortgage lender." The Wall Street Journal, August 22, 2007.
¿ Troubled Loans Increase 49 percent at Federally Regulated Thrifts." The Wall Street
Journal, August 22, 2007.
¿ Big Mortgage Lender in Chapter 11 Filing: Tucson-based First Magnus Financial Corp.,
which last week stopped funding mortgages and closed down its application pipeline, has
succumbed to Chapter 11." The New York Times August 22, 2007.
¿ Capital One Will Close Loan Unit: McLean, Va.-based Capital One Financial said on
Tuesday that it will shutter all 31 offices of its GreenPoint Mortgage subsidiary due to
weakness in the mortgage market, with the accompanying 1,900 layoffs added to the
2,000 it announced a few months ago." The Washington Post, August 21, 2007.
¿ 18,000 Broker Firms to Fail? Wholesale Mortgage Research & Consulting in Columbia,
Md., is optimistic that the residential finance market will improve soon, otherwise one-third
of the nation's loan brokerage firms could fail by the end of 2009." National Mortgage
News, August 20, 2007.
The ongoing subprime crisis has resulted in a liquidity crisis that, at this writing, has driven 100
mortgage lending firms out of business. What began as a flight to quality as investors sold off
securities backed by subprime mortgage loan pools in favor of those backed by other types of
mortgages has resulted in a flight from the market segment. Further, massive sell-offs and
falling bond ratings have removed the value form all mortgage backed securities (MBS),
thereby pulling liquidity out of the mortgage market at an historically high rate.
A few years in the making

When seeking the culprit for the reduction in the quality in mortgage lending, it is clear that
worldwide demand for MBS created a 'rush to lend.' No where was this desire stronger than on
Wall Street, as firms sought to securitize loans in the secondary markets (see Figure 1). With
growing investor demand, the market share of securities issued by Government Sponsored
Enterprises (GSE) continued to fall to under 40 percent of the total MBS market. The result-an
archetypal example of unchecked greed in a rush for market share. Demand pushed supply,
quality of product suffered, investors followed the market, and the market 'unwound.'
With the perceived invulnerability of the MBS instruments which were underwritten by invalid
valuations, this asset class's contribution to financial services growth grew significantly until
08
late 2006 (see Figure 2). As a result, the rapidly declining value of these assets began to
cause widespread concern within the financial services and investor communities. As the
concern spread from 'simply a subprime meltdown' to an overall market correction, market
chaos resulted.
Mortgage industry pundits now foresee a period of correction and transition, expecting
markets to turn around and stay positive sometime in 2009 or later. Figure 3 illustrates the
decline in credit quality that must must be corrected in order to better manage borrower and
market risks.
An opportunity for change

Recent events and trends have humbled many in the industry. Innovation, efficiency and
leverage will be the keys to remaining viable. It is clear that the mortgage lenders and
servicers which intend to remain in the business over the next 12 to 18 months will have to
carefully examine their operating models to secure profitability and efficiency. Options such as
moving work to more cost-effective, remote locations, implementing streamlining technology,
or forming new relationships with other players in the industry will be put on the exam table.
One trend which current market conditions can be expected to accelerate is the shifting of
work to third parties who have deep expertise in delivering mortgage processes. At a
minimum, the cyclical nature of the mortgage business will require survivors react to changes
in mortgage loan demand volume without investing in infrastructure or adding personnel.
But, more fundamentally, changing the operating model will result in streamlined processes,
reductions in cost, faster response time, and deeper levels of expertise.
Initially implemented as a method to cut costs, outsourcing in the mortgage industry quickly
became recognized as a tool to improve service efficiencies. Although saving money on FTEs
was an easy way to demonstrate initial ROI during the planning process, successful
implementation suggested that other benefits could be obtained, impressing the market,
analysts, and shareholders.
Implementing outsourcing on a broader scale should be a logical next step for an industry
under siege. Recent competition in the U.S. mortgage business has already pushed the
industry into seeking cost reduction through outsourcing. Lenders making their initial move
into the market, or exploring ways to expand their outsourcing relationships will find a large
pool of fully trained workers ready to transition and create value quickly.
It is expected that the most successful players will expand further into complex MPO
relationships in search of higher returns, flexibility and more efficient processes. Firms which
ultimately succeed will be those that most effectively structure these MPO partnerships. This
report focuses on the considerations most critical to achieving success from those
partnerships.
09
SECTION 1: Uncertain Times for the Mortgage Industry
Non-Agency
accounts for nearly
two-thirds of the
In Billions of MBS Market
Dollars (USD)
4000
Agency/Non-Agency MBS Issuance
3500
Total Securitization Issuance
3000
2500
2000 Non Mortgage ABS
1500 CMOs / REMICs
MBS
1000
Non Agency MBS
500
Agency MBS
00 01 02 03 04 05 06
Source: FDIC, Ginnie Mae, Freddie Mac, Inside MBS & ABS
Figure 1 : Securitization vs. Agency / Non-Agency MBS Issuance
The securitization of mortgage assets and other asset backed securities has fed the
domestic and worldwide appetite for “secure” financial instruments. As a result, the
amount of money flowing into the mortgage market since 2001 has been astonishing.
This market demand has increased the number of channels and securitizing
organizations well beyond the security of the government backed organizations (i.e.,
GSEs). In 2005, the market share of GSEs in the secondary markets fell to less than half of
the MBS issued. This decline is being reversed due to a flight to quality for risk adverse
investors. For MPO providers this may precipitate a faster shift to eMortgages,
eSettlement, and eServicing resulting in radically shifting back-office submission
processes, compliance guidelines, and levels of expertise.
10
2007 represented a
In Billions of
Dollars (USD) drastic reversal for
mortgage assets'
400
contribution to
350 corporate growth and
profits in the financial
300
s e r v i c e s i n d u s t r y.
250 Historically, the loans
have significantly
200 per formed to
expectations both in the
150
secondary markets and
100 within portfolio
holdings. However, as
50 the subprime risks and
defaults accelerated
due to unwise and
pervasive credit
2003 2004 2005 2006 2007
policies, the assets
Other Interest Earning Assets s i g n i f i c a n t l y
Mortgage Assets underperformed
anticipated financial
Source: FDIC
models.
Figure 2 : Mortgage Asset Contribution to Growth
In Billions of As recently as five years ago, the

Dollars (USD) Percentages vast majority of loans originated
8.6% Share 20% Share
were considered prime. As
4500 18
subprime delinquency rates
subsided and money was
4000 16
injected into “hot” housing
3500 14 markets, borrowers with “riskier”
Mortgage Delinquencies by Type
credit scores and credentials

3000 12 were granted credit on very
Total Mortgages by Type
favorable terms. Compounded

2500 10 by exotic loan products (e.g., IO,
Piggybacks) the market share
2000 8 allocated for borrowers with
“damaged” credit consumed over
Prime 1500 6 half of the loans originated.
Alt-A, Whereas the delinquency rate for
1000 4
Home prime mor tgages remains
Equity, 500 relatively constant, the rates for
2
FHA / VA more risky borrowers and
Sub Prime arrangements has accelerated.
01 02 03 04 05 06 30.5% Share
This increase, combined with a
Prime
volatile investment market, has
Sub Prime lead to a quick reappraisal of the
Source: Inside Mortgage Finance, Mortgage Bankers Association risks and spreads associated with
MBS and ABS assets.
Figure 3 : Total Mortgages vs. Delinquencies
11
SECTION 2
Outsourcing Trends
SECTION 2
Outsourcing Trends
Outsourcing is very much like the “Allegory of the Cave” postulated by Plato in his Republic
over 2500 years ago. With a myriad of possibilities – providers, structure, scope – depending
upon where you sit within the cave, your perception will be very different. The fact that “no one
size fits all” makes it difficult to prescribe a single template for an outsourcing solution.
Outsourcing takes hold

The analysis and best practices described in this report are largely independent of the location
or locations from which the services are being delivered. That being said, no analysis of the
outsourcing business could be complete without a discussion of the massive increase in
offshore resources in the outsourcing industry today. In countries that only a few decades ago
were considered “Third World”, outsourcing in its various forms has become big business.
McKinsey and NASSCOM, the Indian IT trade association, report that India's BPO export
revenues will surge 37 percent by 2010, to $25 billion, from the current $7.5 billion. Like India,
China, Philippines and other countries investing in enabling the BPO industries as a strategy
to improve GDPs, have seen their economies expand dramatically1.
One does not need to look very far to find news of yet another company changing their
operating model through outsourcing, or another story about the rising interest in companies
that provide Business Process Outsourcing (BPO) in its various forms. Market indicators
suggest that BPO providers are quickly moving up the value chain, incorporating expertise in
high end analytical services, often known as Knowledge Process Outsourcing (KPO).
Where possible and for clarity in the context of this mortgage report, we will integrate all
processes provided to the mortgage industry into a more common term – Mortgage Process
Outsourcing (MPO) relevant for the U.S. mortgage banking industry.
Back in the 1970s, when companies first began to evaluate effective outsourcing for the
enterprise, BPO was not on the radar. Rather, organizations were largely focused on tossing
Information Technology (IT) related tasks over the transom to obtain labor arbitrage.
Realizing they could trust their outsourcing partners to get the job done, whether that be
writing a snippet of code, or designing a new corporate network for less than it could be
delivered domestically, companies eagerly embraced third-party service delivery
relationships.
14
To understand the outsourcing market's evolution, a brief historical overview is beneficial.
Risk Mitigation
• Legacy Environments
• Looming Y2K
• Rapid Technological Capital Increases
• Reduce Variable and Fixed Costs
• Systems Availability / SLA s / Workforces
Cost Savings Differentiation

• Cheap Labor • Alliances/ Joint Ventures
• Discrete Tasks • Business Process Outsourcing
• Easily Transferable • Product Expansion
• Non-Mission Critical Tasks • Industry Niches /
• Fragmented / Organic Efforts Specialization
• Delta Target of 300% to 500% • Mission Critical Tasks
1970 1980 1990 2000 2010
Scale / Market Acceptance Composite Offerings

• State-Sponsored Initiatives • Customer Virtualization /
• Industry Knowledge Anywhere, Anytime, Accurate
• Technical Knowledge • Privacy, Security, M&A
• Facilities / Infrastructure • In-depth Process and Domain
• “Copycat” Vendors / “Mushrooming” Expertise -- KPO
• Participation in Markets / Limited Market Influence • Payments Based on Delivery and
Improvements
Competition / Commoditization
• Acquisitions
• Disintermediation
• Customer Facing / Global Markets
• New “Internet” / Digital Needs
Source : WNS, Innovative Relevance
Figure 4 : 40 Years of Outsourcing
As success became obtainable, companies explored further opportunities to outsource. The

scope for and expectations of Information Technology Outsourcing (ITO) and later, business
processes (BPO), were fairly simple in the beginning. Companies stayed in the game
because outsourcing actually reduced their costs. According to an interview with John
McCarthy, a Vice President at Forrester Research, "Hardly anyone loses money on
outsourcing. Stories about it represent the lunatic fringe of the market. Companies often feel
that the savings have been oversold, but they are still seeing at least some savings2.”
15
SECTION 2: Outsourcing Trends
A Forrester survey released at the same time revealed that only 36 percent of 1,001 North
American and European IT companies believed cost savings were lower than expected3.
Yet companies began to understand their role in obtaining cost reduction and a range of other
benefits from outsourcing. They started to acknowledge that they must take responsibility for
addressing internal process and organizational issues before a outsourcing benefits can be
obtained or sustained, answering key questions:
¿ What functions or processes can be outsourced? What are the key imperatives leading
the transformation?
¿ What service models yield the best results for our individual organization and will they
remain constant? How can these models ensure consistency, efficiency, and regulatory
conformance?
¿ What end-to-end risks are being explicitly and implicitly assumed? What controls and
governance processes need to be implemented to gain results? Is the organizational staff
ready for the discipline and rigor required to implement a successful outsourcing
relationship? What can be done to improve the success rate and organizational buy-in?
Evolution of new models

As outsourcing sponsors sought benefits beyond cost savings, new outsourcing models
evolved, moving the industry up the value chain into Wave 2 (see Figure 5). Structures
became much more complex than simple customer-vendor relationships. The number and
scale of processes in scope began to influence the agreements, resembling partnerships
rather than supplier contracts.
Figure 6 illustrates the evolution that outsourcing relationships sometimes follow. As

outsourcing providers become more adept at meeting the needs of their customers, and
customers become more sophisticated in managing new operating models, the relationship
structure can move to the right. This eventually leads firms to expand scope dramatically. As
an interim step, some companies adopt hybrid models to make use of a combination of
internal departments, local outsourcing firms, offshore captives and offshore outsourcing
partnerships.
This evolution varies according to industry. For example, companies whose competitive
advantage resides in high levels of intellectual property may require greater operational
security; as a result, they favor captive operations. However, those companies whose value
proposition is heavily dependent on commoditized processes move to outsource as much as
possible in an effort to reduce operating expenses and cost of goods to their lowest level.
16
Mortgage processes get on to the bandwagon
This trend is expected to persist for the foreseeable future, as market drivers continue to push
companies into operating models and relationships that will allow them to remain profitable
under the pressure of changing market conditions. As shown in Figure 7, various changes in
market conditions and the evolution of the outsourcing industry have created new
opportunities to outsource even the most complex of mortgage processes. According to
industry sources, the market can be expected to grow by nearly 20 percent between 2005 and
2010 (see Figure 9).
The offshorable addressable MPO market that serves the US residential mortgage
ecosystem is estimated to be in the range of $6.0 - $7.5 billion. This comprises the universe of
wholesale, retail and reverse mortgage lenders, services, sub-services, lender services,
providers and mortgage insurance companies. The existing mortgage processing market in
India is estimated at approximately $200 million, employing over 10,000 people. It is
conservatively estimated that the U.S. MPO market could grow to approximately $1 billion
over the next five years at a CAGR of 50 percent.
17
Market Pressures Optimization
Transition / Continuous
Adaptability “ Building-blocks ”
migrations improvements
Customer Oversight and controls Innovation
Expectations Virtualization
Regional pressures
Privacy
Operational and
Security
Investment systemic risks
Operating and aversion Wave 2
Implications capital costs Skills – availability
and choice
Disintermediation Risk transference
Management complexities
Limited
domain skills Holistic solutions
Wave 1
Resource Pools
Capabilities
Channel and
New labor sources
Opportunities capacity Results= Compliance
Localized
payments
wages
BPO / KPO
Layering and Domain Shifts
Relationships Specialization
Events and Requirements
Figure 5 : "Waves" of Outsourcing Pressures
Balancing the market pressures of customer expectations and channel opportunities against
the evolving BPO domain capabilities has created intense pressures on delivery, quality,
efficiency, and sustainability. The structure of an outsourcing relationship must be adaptable
and flexible changing with evolving business needs, macro-economic events, and
organizational change. The adoption waves suggest a growing requirement for advanced
delivery strategies, risk mitigation, and ongoing innovation. Optimization requires
relationships to be forged across process specializations and delivered end-to- end.
18
In the 1980s and 1990s, ,the implementation of new target delivery models – either
outsourced or captive – was driven by costs. The business case was compelling due to the
availability of cheap labor in developing economies, the rapid growth of information
technology, and the viability of relocating call centers and customer services to remote
locations. Over time, other models evolved including joint ventures between the buyer and
third party provider. As BPO encompasses high end decision support processes or
knowledge processes, hybrid models are emerging, characterized by “gain-sharing,”
adaptable forms of governance, and new rules of engagement.
Confusion is prevalent
regarding the different
Outsourced models, their adoption
Ou
t so rationale, and their
Domestic or ur operating implications
international cin Today’s BPO is
g
location, typically m Evolving into ever
od
third party Captive els varied knowledge
co process outsourcing
nt
Self-contained inu
e (KPO) models (both
corporate to domestically and
service entities – ev
ol v internationally)
large investment e
• Shift Joint Venture to
execution to m
Partner /
ee
third party t m
ownership with ar
• Large known ke
t sp
number of • Driven by outsourcing firm ec
providers for domestic or Offshore ial
the 1990s offshore services
i za
• Well insourcing Frequently
t ion
established initiatives established in
for call • Large firms developing
centers, nations with
established skilled Hybrid
CRM, and IT self • Created with workforces
• Large, public contained third-party Any one of the
firms with “service” firm with co- four previous
locations in models used in
entities ownership various
China, India, • Charged • Shared • Started by combinations
Philippines, back to return and labor
and Russia parent expense arbitrage
• Once company responsibility • Expanding
dominated divisions – • Contains due to
by large less than “buy-out” quality and • Varied models
domestics market rates clauses remote skills driven by KPO
Figure 6 : Outsourcing Models and Relationships
19
Changes in market conditions have created new incentives and opportunities

Increase in Growing Transition Governance Outsourcing is
number of specialization experience models are now a
outsourced of processes reduces proven and “mainstream”
skilled outsourced complexity adaptable corporate
workers strategy
• Increase in • Knowledge • Mature • Remote • No longer for

available, driven models management primitive
educated • Increase in • Cross- capable processes
global industry domain • Resolution • Financial and
workforces specialization trained methods operational
• Lead times • Compartment personnel • Alignment acceptance
reduced -alized • Known and selection • Globalization
• Risks processes programs – • Growth and • Population
mitigated • Best-in-class expected change shifts
results anticipated
Origination Servicing Securitization
Electronic registration Electronic processing
End-to-end mortgage processes
Source: WNS, Innovative Relevance
Figure 7 : Changing Market Conditions
Outsourcing was once considered a target operating model strategy for large, diversified
financial services organizations. Today, it is being deployed within the mortgage industry by
organizations of all sizes. Utilizing improved implementation techniques and adaptable
governance models, organizations are deploying a range outsourcing models to respond to
changing customer demographics, buying behaviors, and electronic process adoption of
eMortgages. The impact on operations and the economy have overall proven positive for the
consumer, product offerings, and back-office margins. The implementation of multiple
process MPO should escalate as the industry faces increased commoditization.
20
Average Contract Durations –In Years
$1,300 8 Adoption of outsourcing
started with IT processes.
Over time, and with
increased acceptance,
In $ Billions, USD
975 6
pricing has commoditized.
BPO represents the second
wave of outsourcing and is
projected to overtake world
650 4
wide ITO spend in 2008.
per year
to 14%
asing 10%
cre 2
325 hare In
Total $ arket S
BPO M
BPO $
ITO Yrs.
BPO Yrs.
2005 2006 2007 2008 2009 2010
Estimated
Sources: IDC, TPI Index, WNS
Figure 8 : ITO vs. BPO Growth
The combined ITO and BPO

Average Contract Durations –In Years
$1,300 8 markets will exceed $1 trillion

worldwide by 2010. the mortgage
BPO market is smaller. However, its
growth is projected to be
In $ Billions, USD
975 6
consistently increasing at 10% to
20% per annum. These estimates
should be used with caution as the
mortgage and housing markets
650 4
experience their worst performance
in over a decade. Racked by
per year illiquidity of financial instruments,
to 14%
asing 10% bankruptcies, and layoffs, the
cre 2
Total $ 325 hare In
arket S industry may not recover for several
BPO M years. This industry correction of
BPO $
ITO Yrs. dogmatic and historical
BPO Yrs. arrangements may actually increase
2005 2006 2007 2008 2009 2010 outsourcing in this segment as
Estimated executives are pressured to deliver
performance by the markets and
Sources: IDC, TPI Index, WNS their shareholders.
Figure 9 : BPO Mortgage Market Growth
21
SECTION 3
Mortgage Processes and their Scope
for Outsourcing
Technology shows the way
Arguably, changes in the mortgage industry's operating models were driven by the
introduction of automated underwriting, Since the Government Sponsored Enterprises
(GSE) first advanced automated underwriting, making it possible for mortgage lenders to
determine whether the loans they were originating could be sold into the secondary market on
an automated basis, lending organizations increased their investment in enabling
technologies. After increasing the speed with which loans could be accepted into the pipeline,
lenders aggressively pursued systems that could automate more of the loan origination
process. Today, some lenders claim that certain loan types, primarily home equity second
liens to A-credit borrowers, are being funded in a completely automated fashion with greatly
reduced cycle times.
This type of end-to-end automation requires sophisticated loan origination systems (LOS).
Consequently, a number of companies have been operating in this space for the past 20 years
– with some estimating more than 70 LOS providers were operating in the mortgage business
in 20054. Some of these providers serve hundreds of mortgage originators, but most have a
pint-sized share of a highly fragmented market.
Most of the industry's top lenders developed their loan origination technology in-house,
despite the fact that development was expensive and time consuming. By the mid 1990s,
lenders had realized that this type of information technology work was tailor-made for delivery
through third party relationships, constituting the first wave of outsourcing witnessed in the
industry. During this wave, American lenders turned to offshore ITO firms with access to
trained software development personnel willing to work for a fraction of the fully-burdened
expense of an American workforce.
As mentioned in Section 1, ITO acceptance swiftly gave way to moving business processes
offshore as lenders followed the path blazed by other diversified financial institutions. Some
institutions started sending banking functions to their offshore captives since the early 1990s.
These internal outsourcing relationships represented the first wave of globalization, with
institutions seeking lower production costs in functional areas such as call centers,
information technology and document management. Achieving critical mass in the mid to late
1990s, these operations became self-contained, easily transferable, and could be located
offshore in regions with supplies of trained, low-cost workers.
The trend then lost momentum. For nearly a decade, lenders stopped moving much beyond
their initial forays into alternative sourcing models.. Only recently have companies looked
beyond ITO and the outsourcing of basic back office mortgage processes into the feasibility of
forming more complex outsourcing relationships. Driven by declining origination volumes
(see Figure 10) and illiquid collateralized debt obligations (CDO), the trend cannot help but
pick up steam, even in an industry rocked by layoffs, bankruptcies, and liquidations.
Convergence suggests the time is right for increased adoption

Moreover, productivity indicators suggest that outsourcing business processes should be a
no-brainer for mortgage lenders (see Figure 11). According to Mortgage Bankers Association
24
(MBA) data, since 2003 the industry has experienced a decrease in loan officer productivity
approaching 40 percent, while the origination costs per loan have more than doubled.
Furthermore, the average income per loan for 2007 is anticipated to be under $250, while
origination volume is projected to continue to slide.
To make matters more complicated, loan volumes are expected to continue to fall
(see Figure 12). This is a recipe for continued industry consolidation and shakeup with
significantly declining volumes and margins resulting in organizational restructurings and
expansion of sourcing relationships. Lenders intent on remaining competitive in the face of
shrinking margins will be driven to outsource more processes, competing on the basis of their
specialization in the processes they maintain in-house. It is expected that the mortgage
industry will push more deeply into the second wave of outsourcing.
At the same time, MPO providers have been steadily improving their up-market knowledge
capabilities in an effort to move beyond single process outsourcing contracts. The net effect is
that lenders, struggling to maintain revenue, can tap the skills of providers with highly skilled
mortgage workforces.
However, lenders are still asking, what processes should be outsourced (i.e., where do we
begin)? How can the mortgage processes be ranked or assessed for application in times of
market redefinition or correction?
Identifying the opportunities

As companies in the mortgage space begin to take a closer look at the range of outsourcing
opportunities that exist within end-to-end mortgage processes, many are finding that the
universe is much larger than they anticipated. Due to the siloed nature of the lending business
in the U.S., many experts working in one area are unaware of the opportunities available in
others. Origination-focused executives, for instance, are not typically well versed in the
various processes of the secondary market or in the loan servicing business.
Figure 13 identifies a number of discrete processes across the mortgage enterprises that
have been successfully outsourced in the past. While some of the functions are simple ITO
opportunities, many describe BPO, or more complex KPO processes. Over the past five to
seven years, leading mortgage lenders have explored these waters, experiencing various
levels of success, depending upon the process outsourced, internal organizational discipline,
the outsourcing model chosen, and the specific SLAs and OLAs included in the contract. For
mortgage professionals and executives dealing with these industry conditions and seeking
the right outsourcing solution, questions abound:
¿ What is the availability of mortgage expertise for a given process?
¿ How can our organization quickly and painlessly integrate or “on-board” a third-party when
our existing processes are not robust or even changing as a result of other initiatives such
as the implementation of eMortgage and the adoption of eDelivery standards?
¿ How can outsourcing relationships be aligned to promote collaboration and innovation,
avoiding a confrontational customer-vendor relationship?
25
SECTION 3: Mortgage Processes and their Scope for Outsourcing
¿ Which processes are consistently difficult to outsource and why? What prerequisites or
conditions must be met or addressed before considering outsourcing potentially “core”
processes? For instance, in the mortgage lending space, compliance with regulatory
requirements will affect which processes can be outsourced and how they can be
outsourced. This is particularly true for certain government-backed loans.
¿ Do we have a business case, or are we merely looking to “rid ourselves of a problem unit?”
¿ What are the non-financial benefits and implications that face our organization if we
implement end-to-end processes?
¿ Which critical metrics should be put in place to measure adherence to contractual terms?
What measurements must be implemented to promote growth, innovation, and long-term
MPO relationship viability?
¿ Which capabilities are critical to effectively manage and govern the relationship? Which
one-time and annual investments must be made to effect successful transition and
governance?
From simple to complex... process suitability varies

Industry experience suggests that over 50 mortgage processes have been outsourced in
some form or fashion (see Figures 14 to 19). In order to assess their suitability for
outsourcing, each has been assessed according to the following seven characteristics:
¿ Complexity
¿ Potential return and cost savings
¿ Transition time
¿ Maturity
¿ Implementation risks
¿ Security and privacy challenges
¿ Governance challenges
All processes reviewed were also segmented into the traditional three mortgage process
segments – origination, securitization or secondary markets, and servicing. These, in turn,
were further consolidated into six mortgage outsourcing subsets:
¿ Origination Production and Product Sourcing (see Figure 14),
¿ Origination Loan Management and Processing (see Figure 15),
¿ Origination Underwriting, Settlement, and Funding (see Figure 16),
¿ Securitization Secondary and Investment Markets (see Figure 17),
¿ Servicing Management Processing (see Figure 18), and
¿ Servicing Management Specialized / Exception Delivery (see Figure 19).
26
In total, nearly 400 discrete assessments were made across all outsourced mortgage
processes, resulting in an analysis that is compelling.
After a closer examination of the results it becomes clear that, individually and collectively, the
mortgage processes overall are far more complex than might be perceived at first glance.
Lenders can manage this complexity, and reap a range of benefits if a careful analysis is
performed enterprise- wide before entering into outsourcing relationships. Moreover, by
singularly examining each process by itself or only along one of the seven characteristics, all
implications of transition and implementation are not readily apparent. Looking at the
interrelationships of the processes helps project teams create an outsourcing roadmap which
sequences transition and staging.
Using data from the Mortgage Bankers Association, McKinsey, and Deloitte, the holistic cost
of lending processes can be allocated to origination, as well as secondary market activities
such as securitization and loan servicing (see Figure 20). While opportunities to lower costs
are available to lenders outsourcing any of these functions, lenders that outsource processes
across all three areas will reap the highest potential rewards. But the highest rewards will
come from outsourcing which processes?
The answer depends upon a number of factors, most of which will be discussed in the
following sections of this report. An initial analysis of the various functions indicates that the
assorted processes fall naturally into the three waves described in the previous section of this
report (see Figure 21), and are correlated to complexity and value. As expected, those
processes that are relatively easy and not complex generally encompass ITO functions that
were outsourced as part of the first wave. Those that are more complex and embrace
business processes are typically included in Wave 2.
Finally, it is possible to detect a third wave, consisting of the most complex and difficult tasks
which require high end analytics and complex knowledge based processes. From all
indications, this is the future of outsourcing for the mortgage business. However, evidence
suggests that the waves should be implemented sequentially for optimum success.
To see why mortgage lenders can be expected to evolve the complexity of their outsourcing
relationships, the data was further analyzed along these discrete processes in terms of
complexity versus a number of other considerations, including financial ROI, transition time,
process maturity, as well as various risks (see Appendix - Individual Mortgage Process
Cluster Rankings).
27
Mortgage market data clearly suggests why the industry is experiencing a correction.
Income per loan has been on a five year slide while volume continues to trend down.
During 2008, mortgage industry operating behaviors are expected to continue to pressure
margins, markets, and the consumer.
In Billions of In Dollars
Dollars (USD) (USD)
4500 1500
Origination Volume (Purchase
3750 1250
Net Income Per Loan

and Refinance)
3000 1000
2250 750
1500 500
750 250
2001 2002 2003 2004 2005 2006 2007 2008

Estimated
Sources: Mortgage Bankers Association, Inside Mortgage Finance
Figure 10 : Origination Volume vs. Net Income Per Loan
Loans Closed per Year In Dollars (USD)

Productivity and production
150 3000 volume continues to decrease
and lag behind the benchmark
Loan Officer Productivity
125 2500 established over six years ago.

Costs to Originate
As productivity fell, the

100 2000 corresponding cost to originate
has risen to a decade high.
75 1500 These data suggest that the
industry must seek high quality
50 1000 results and better productivity
all at an improved price point.
25 500
2001 2002 2003 2004 2005 2006
Source: Mortgage Bankers Association
Figure 11 : Loan Officer Productivity vs. Costs to Originate
28
In Thousands of Units In Thousands of $
8000 400
7000 350
Average Loan Balances

6000 300
Home Sales
5000 250
4000 200
3000 150
2000 100
1000 50
Existing Home Sales
New Home Sales
Average Loan Balances 2001 2002 2003 2004 2005 2006 2007 2008
Estimated
Source: Mortgage Bankers Association
Figure 12 : Homes Sales vs. Average Loan Balances
The macro economic housing and mortgage trends are not positive. While home sales are
projected to level off at a rate still considered strong, market conditions in some
geographical areas have dipped to 10 to 15 year lows. Yet consumers are continuing to
spend and taking on ever increasingly large home loan balances. Contributing factors for this
correction have come from a lowering of credit standards.
29
Origination Securitization Servicing Management

Loan Secondary
Production and Management Underwriting, Specialization
and and Exception
Product Sourcing and Settlement and Processing
Funding Investment Delivery
Processing Markets
• Relationship • Loan Application • Underwriting • Variance • New Loan Setup • Default

Management Kit / Management Quality Analytics and Management
• Billing and
• Channel (Capture Assurance Analysis Reporting • Early Stage
Management: underwriting data) • Closing / • Assignment of • Taxes and Escrow Collections
• Direct • Loan Products Exception Loans and Trades Accounting • Late Stage
• Internet (e.g., Appraisal, Management • Portfolio • Document Collections
Title, etc.) • Policy Audits
• Telemarketing Management and Updates and • Compliance /
• Quotes and Locks • Compliance Valuation
• Referral Certifications Community
• Pre-Funding Audits • Buybacks and Actions
• Broker • Credit
• Loan Indexing • Customer Investment Management / • Real-Estate
• Cross-selling and Qualification Services Guarantees Borrower Credit Owned (REO)
• Customer Data • Credit Processing • Document • MBS, Tranches, History / Management
Capture and and Approval Review and and Correction
Mining • Foreclosures
• Due Diligence / Follow-up Segmentation Management
• Purchase Advisory • Bankruptcies
Document • Shipping Data • Investment • Payoffs and
and Management: • Claims
Verification Entry and Pipeline Authorization
• Government Processing
(Fraud mitigation) Validation • Document Processing
• Community • Loan Processing (Investor Follow-up • Lien Release
• Product (Running Delivery) • Investor and • Product Cross -
underwriting risk • Final Docs Financial Selling
engines, ordering • Correspondent Services • Customer Service
collaterals) Lending Management
• Assurance
• PMI / MIP • Hedging and Risk Services
Management
• Account
Management
Figure 13 : Mortgage Process Value Chain
The mortgage process outsourcing value chain is comprised of over 50 common outsourced processes.
These processes can be segmented into three primary categories and six subcategories.
30
In origination, the processes within Mortgage Process Characteristics
the Production and Product
Potential Return / Cost Savings

Servicing are largely of moderate in
Security / Privacy Challenges

complexity with the exception of High
Governance Challenges
Cross Selling and Customer based
Implementation Risks
Moderate to High
Process Complexity
Research. These processes can be
Process Maturity
expected to become more complex
Transition Time
Moderate
as the company introduces more
products and variation. Low to Moderate
Low
Production and Product Sourcing Relationship Management

Channel Management:
- Direct
- Internet
- Telemarketing
- Referral
Origination
- Broker
- Cross-Selling
Customer Data Capture

and Mining
Purchase Advisory and Mgt.:

- Government
- Community
- Product
Figure 14: Individual Process Rankings: Production and Product Sourcing
Figure 15: Individual Process Rankings: Loan Mgt.

Mortgage Process Characteristics
and Processing
MPO started with loan management and

processing in the late 1990s. While most
High
of the processes are mature, the myriad of
Process Complexity
options and customer needs create Moderate to High

Process Maturity
Transition Time
complexity and transition challenges. With

Moderate
the constant changes in investor/
underwriting guidelines, MPO providers Low to Moderate
must have a robust training mechanism to
keep their processes up to date. Low / Not Applicable
Loan Mgt. and Processing Loan Application Kit / Mgt.

(capture underwriting data)
Loan Products (e.g.,
Appraisal, Title, Etc.)
Quotes and Locks
Origination
Pre Funding
Loan Indexing and
Qualification
Credit Processing and Appr.
Due Diligence / Document

Verification (Fraud Mitigation)
Loan Process (UW risk
engines, ordering collaterals)


High
Process Complexity
Moderate to High
Process Maturity
Transition Time
Moderate
Low to Moderate
Low / Not Applicable
Underwriting, Settlement, and Underwriting Quality

Funding Assurance
Closing / Exception Mgt.
Policy Audits
Compliance Audits
Customer Services
Origination
Document Review and

Follow-up
Shipping Data Entry and
Validation (Investor Del.)
Final Documents
Correspondent Lending
PMI / MIP
Figure 16 : Individual Process Rankings: Underwriting, Settlement and Funding
Processes within the Underwriting, Settlement, and Funding outsourcing categories are frequently
associated with MPO. This category's complexity coupled with high expectation of returns creates
operational and management challenges for mortgage companies. Given the sophistication of
processes such as compliance audits, underwriting, evolving electronic settlement, and
correspondent lending, providers delivering these capabilities must have comprehensive
transition and risk management methodologies.
32
Securitization is the most complex High Mortgage Process Characteristics
set of processes to outsource.

Moderate to High

Factoring in the implementation
risks and the process touchpoints,
Moderate
provider capability and client
Process Complexity
Low to Moderate
governance sophistication is critical.
Process Maturity
Transition Time
Secondary and Investment Markets Variance Analytics and

Analysis
Assignment of Loans and
Trades
Portfolio Mgt. and Valuation
Buybacks and Investment
Securitization
Guarantees
MBS, Tranches, and
Segmentation
Investment Pipeline
Document Follow-up
Investor and Financial
Services Management
Hedging and Risk Mgt.
Figure 17 : Individual Process Rankings: Secondary and Investment Markets
Figure 18 : Individual Process

Rankings: Service Management Processing
Since the mortgage industry outsourced

Service Management Processing at the High
outset of adoption, these activities are

Process Complexity
Moderate to High
Process Maturity
relatively mature. With known risks and

Transition Time
transition times, these processes are Moderate

often considered by sourcing
Low to Moderate
organizations as the minimum processes
in scope. Low / Not Applicable
Processing New Loan Setup
Billing and Reporting
Taxes and Escrow Accting.
Document Updates and

Certifications
Servicing Management
Credit Management,
Borrower Credit History,
Correction Management
Payoffs and Authorization
Processing
Lien Release
Product Cross-Selling
Customer Service
Assurance Services
Account Management

This process category is the most Mortgage Process Characteristics

complex and challenging for both

sourcing organizations and providers. A
highly complex and specialized High
knowledge base is required on the part
Process Complexity
Moderate to High
of providers During periods of market
Process Maturity
Transition Time
correction, these processes take on Moderate
additional importance. Low to Moderate

Specialized / Exception Delivery Default Management
Early Stage Collections

Servicing Management
Last Stage Collections
Compliance / Community
Actions
REO Management
Foreclosures
Bankruptcies
Claims Processing
Figure 19 : Individual Process Rankings: Service Management Specialized/Exception Delivery
Range of Expense
100% Most Likely Origination

Most Likely Securitization
Most Likely Servicing
75%
A range of savings can

be anticipated and have
50% been achieved by
financial institutions in
Average selective processes –
not all outsourced
processes achieve
25%
similar results.
Total Process Origination Securitization Servicing

Costs Percentage Percentage Percentage
Sources: Mortgage Bankers Association, McKinsey, Deloitte
Figure 20 : Mortgage Expense Allocation by Major Segmentation
While the range of costs within the origination, securitization (i.e., secondary markets), and servicing processes
varies significantly by organization, research indicates that origination consumes at least twice the initial cost as
the other two categories combined. Organizations, striving to reduce costs, typically concentrate their initial
efforts on origination and baseline servicing. The more complex, non-standardized processes were until recently
relegated to secondary consideration for outsourcing.
34
easy Wave 1
41
4 31 Wave 2
2
25 39 15
47 29
3
44 43
27
24 17 40 Wave 3
22 5 42
11 19
Process Ranking
9 6 23
18 26 13 16
36 1 45
46 7
52 55
10 48 12 38b
51 28 32
21
30
35 8 37
14 34
54 38a 50
33
49 20 53
56
Source: WNS,
Demanding Innovative Relevance
low Complexity high

Weighted averages of mortgage process rankings
Cluster segmentations are
Figure 21 : Mortgage Processes Weighted Cluster Rankings included as an appendix
ORIGINATION C. Underwriting, Settlement, and SERVICING MANAGEMENT

A. Production and Product Sourcing Funding A. Processing
1. Relationship Management 20. Underwriting Quality Assurance 38b.New Loan Setup
Channel Management: 21. Closing / Exception Management 39. Billing and Reporting
2. Direct 22. Policy Audits 40. Taxes and Escrow Accounting
3. Internet 23. Compliance Audits 41. Document Updates and Certifications
4. Telemarketing 24. Customer Services 42. Credit Management / Borrower Credit
5. Referral 25. Document Review and Follow-up History / Correction Management
6. Broker 26. Shipping Data Entry and Validation 43. Payoffs and Authorization Processing
7. Cross-selling (Investor Delivery) 44. Lien Release
8. Customer Data Capture and Mining 27. Final Docs 45. Product Cross-Selling
Purchase Advisory and Management: 28. Correspondent Lending 46. Customer Service
9. Government 29. PMI/MIP 47. Assurance Services
10. Community 48. Account Management
11. Product SECURITIZATION
Secondary and Investment Markets B. Exception Delivery
B. Loan Management and Processing 30. Variance Analytics and Analysis 49. Default Management
12. Loan Application Kit / Management 31. Assignment of Loans and Trades 50. Early Stage Collections
(capture underwriting data) 32. Portfolio Management and Valuation 51. Late Stage Collections
13. Loan Products (e.g., Appraisal, Title, etc.) 33. Buybacks and Investment Guarantees 52. Compliance / Community Actions
14. Quotes and Locks 34. MBS, Tranches, and Segmentation 53. Real-Estate Owned (REO)
15. Pre-Funding 35. Investment Pipeline Management
16. Loan Indexing and Qualification 36. Document Follow-up 54. Foreclosures
17. Credit Processing and Approval 37. Investor and Financial Services 55. Bankruptcies
18. Due Diligence / Document Verification Management 56. Claims Processing
(Fraud Mitigation) 38a.Hedging and Risk Management
19. Loan Processing (Running Underwriting
Risk Engines, ordering collaterals)
After examining the mortgage processes both discretely and holistically, a numeric assignment was given to each
criterion within the individual process a process criteria ranking. Compiling these rankings across each criterion
and within the process, an overall rating was determined. Using complexity to normalize the rankings, the
processes concentrate in three distinct clusters. These clusters suggest a sequencing or phasing of processes that
should be factoring into any outsourcing roadmap. Individual cluster segmentations are included as an
Appendix.
35
CASE STUDY 1
Top 20 Wholesale Lender
MPO as a strategy to innovate
A privately held wholesale lender adopted offshore outsourcing after only a few years of
operation as a strategy to expand more quickly. To achieve this objective, the company
decided to partner with both ITO and BPO providers which could implement and maintain
systems, and set up a back office quickly, implementing some process that had never been
performed in-house, allowing company personnel to focus its attention on business
development.
At present, approximately 250 IT resources are engaged in building out and maintaining the
company's proprietary loan origination system, while 350 BPO resources are delivering 28
different processes, each with its own Service Level Agreement. SLAs are updated internally
every 90 days and, with the client, 180 days when changes are required.
Key Benefits and Measurements

With many processes delivered on an outsourced basis, ITO personnel had to work closely
with both BPO personnel and company management to create new solutions from the ground
up, tweaking the technology as required. In some cases, new technologies were created to
meet company needs.
One example is the company's innovative loan document indexing platform. Before
implementing BPO, the company indexed approximately 500 loans per day with 35 FTEs.
Expecting a spike in volume, the company invested in new technology that was built by the
BPO partner. Loan volume tripled over the next three years, but since the time to index was
reduced from 30 minutes to 10, the indexing is performed by the same number of FTEs. This is
a clear example of innovation through mortgage process outsourcing as opposed to “throwing
more bodies” at a problem.
The trend then lost momentum. For nearly a decade, lenders stopped moving much beyond
their initial forays into alternative sourcing models. Only recently have companies looked
beyond ITO and the outsourcing of basic back office mortgage processes into the feasibility of
forming more complex outsourcing relationships. Driven by declining origination volumes
(see Figure 11) and illiquid collateralized debt obligations (CDO), the trend cannot help but
pick up steam, even in an industry rocked by layoffs, bankruptcies, and liquidations.
36
“At a Glance”
Volumes / Performance
Operational Complexity
Governance Demands
 Delivered cost saving of up to 50%

on a process by process basis.
Process Variability
Transition Risks
 Developed in-depth training and

Critical talent development programs to
Processes Delivered train and retain resources.
 Developed hybrid MPO solutions

leveraging people, process
improvement, technology, and
Loan Document Low Low Low Low Low knowledge to improve process
indexing efficiency.
Post-dosing trailing  Provided a flexible pool of resources

documents follow-up Low Moderate Low Low Low with cross-training to manage
volume functions.
Loan Processing High High Moderate High High
-  Built custom applications in support
Underwriting QC High High High High High of MPO functions to automate certain
tasks and handle increased volumes.
Rate Quotes & Locks High High High High High
New Loan Setup High High High Moderate High
 Conventional, Jumbo, HELOC,
Investor Loan Alt-A, Piggy
- Bank, Option ARM,
Delivery Moderate Low Low Low Low
Second Mortgage
Customer Service Moderate High High High High
Engagement Transition
Model Timing TAT Associates Accuracy
Third Party Real-time
– to ~350 FTE’s > SLA’s
6-12 months 13 days
Outsourcing
37
SECTION 4
Moving Beyond Cost Savings
Successful MPO partnerships cannot be constructed solely on the basis of expected process
cost savings. Whereas the main criterion for selecting any provider is often cost, this approach
will not be optimum in the mortgage industry. The complexity of the processes and the
structure of delivery mandates a partnership that is focused on performance and quality rather
than lowest cost.
This requires mortgage company sourcing managers to change their historic mindset.
Obtaining the 'absolute best deal', does not create the greatest value when evaluating MPO
strategies and providers The current state of the industry and the concommitent need to
change traditional operating models in order to survive and flourish compels the smart
mortgage executive to look beyond price.
Focusing on cost savings alone pushes mortgage companies into a Wave 1 outsourcing
mentality, where only the simplest functions are outsourced 'one-off' because they can be
delivered by the lowest-paid workers. This prevents companies from moving into higher value
Wave 2 and ultimately Wave 3 outsourcing where real efficiencies resulting from outsourcing
end-to-end processes can be gained. When complex mortgage processes encompassing
loan management and processing, underwriting, settlement, funding, and servicing are
outsourced and transformed, speed, quality, performance are gained, and the risk of
disconnects to upstream and downstream processes is reduced. Often, outsourcing multiple
processes to one partner alleviates the risk of transition and governance, resulting in
improved scale, more comprehensive knowledge transfer, and organizational acceptance.
MPO as a driver of change

Outsourcing can force process change by the very nature of its implementation. Transfer of
data forces the adoption of technology – either new or undeployed. Paper-based or
personalized processes must be abandoned in the transition to third party provision.
An example comes from outsourcing mortgage underwriting as part of the post close quality
control process. In this case, the lender forwards electronic loan documents to the partner
where they are processed. When the work is complete, an FTE in the lender's shop checks the
loan file for completeness. Where documents or information are missing, the work is
transferred back to the provider for research. Changing process flow through technology, the
loan can be checked for completeness at the same time it is being re-underwritten, saving the
lender time and money. The benefit comes back to the lender in the form of a more streamlined
and efficient work flow.
In many cases, the work required to ensure that the various technology platforms work well
together forces the lender to revisit its business rules management system (BRMS).
Opportunities exist for process improvement, resulting in the elimination of non value-added
tasks and efficiencies. Often the MPO partner can implement these changes alone depending
upon the degree process scope; in other situations, the partner can work with the lender to
identify upstream and downstream process changes.
40
Organization change must come from the implementation of outsourcing. The adoption of
increasing complex MPO signifies a shift from organizational need (i.e., “we have to get this
done”) to positioning for expansion and growth (“how do we lift performance and gain more
capacity?”). The need for clear performance benchmarks, operating limits, and complex
change management to partner with a third party drive the need for organizational discipline
and rigor. This puts pressure on the organization to evaluate its structure and capabilities in
light of new expectations and new delivery models.
And, although counter-intuitive, MPO adoption drives clarity in the need for continued
investments in mortgage processes. Good delivery is not throwing the investment in
processes and technology over the transom to a provider. It forces better definition of tools
required, their returns on investment, and staging, no matter the source of funding.
Going beyond cost savings mandates requires the right enablers

Once the decision to outsource has been made, the ultimate success of the endeavor is
dependent upon the processes that are put in place to promote performance, manage risk,
and meet regulatory requirements. Obtaining cost savings is a relatively simple exercise; in
positioning a relationship. In order to “stack the deck” for success, the parties must set forth
critical success factors, identifying the adoption characteristics that must be in place. This
requires the creation of a relationship framework which incorporates the analysis of five key
enablers for MPO implementation:
¿ Agility and competition (Figure 22)
¿ Time-to-market capabilities (Figure 23)
¿ Quality and skills (Figure 24)
¿ Compliance (Figure 25)
¿ Capacity for growth in the relationship (Figure 26)
As illustrated in each of these figures, each enabler must be analyzed in advance of entering
into an arrangement with a potential outsourcing partner. A number of the considerations
focus on the unique capabilities of the provider. But of equal importance is an evaluation of
the company's own internal attitudes, assumptions and capabilities in each area. What is
more, this analysis is not merely a baseline setting exercise that is expected to occur only
once, but rather an iterative process that will reoccur periodically as the relationship
progresses, and corporate requirements and business conditions change.
Entering the right relationship means answers must be found to a number of questions. For
example, in Figure 22, the outsourcing proponent must deal with issues centering on agility
and competition. As a suggestion, three common questions should be answered in the very
early stages of structuring an MPO relationship. How large is this particular relationship likely
to be? What drivers will determine how we choose to structure our relationship? How can our
go-to-market efforts be enhanced? The answers will vary by the needs of the company, but
they are necessary to set the scope, scale and pace of the relationship.
41
SECTION 4: Moving Beyond Cost Savings
In every case, for each of the five enablers, the lender must develop measurements to
evaluate results. Post transition, when executives and key stakeholders sit down to evaluate
the progress of the outsourcing relationship they must have an established basis on which to
evaluate performance. Neglecting to agree these measurements in advance will make it more
difficult to objectively evaluate results.
Each critical success factor suggests key adoption characteristics. These consist of tools or
tactics that are put in place in order to meet critical imperatives. While these can be “runway
lights” for company executives, they should also be seen as opportunities for innovation.
To contrast, the outsourcing industry often simplifies the importance of critical success
factors. To help the reader compare the common industry wisdom with the adoption
characteristics that really matter, an industry barometer is included in the figures.
To illustrate, when it comes to Agility and Competition (Figure 22), most company executives
would say that cost savings is their most important consideration. Yet, according to the
industry, the depth of operations which creates those savings is of least importance.
However, as more processes are outsourced and the relationship with the provider deepens,
operating depth becomes the key factor in achieving savings. By considering the potential
for operating depth early on, partnerships can be structured for ultimate MPO success.
Because research suggests benefits increase commensurate with the increase in, i.e, a
greater number of mortgage processes are outsourced (as suggested in the previous section
of this report), the last category, Capacity for Growth, takes on great importance.
42
Is there a required size or set of characteristics that define successful MPO collaboration?
What are the definitive organizational drivers surrounding the relationship?
How can go-to-market efforts be enhanced?
Time-to- Quality and Growth /

Agility / Competition Compliance
Market Skills New Ventures
• Cross-border management
• Operating model adoption Critical Imperatives
and
• Process compartmentalization Influencing Factors
• Defensibility of arrangement
• Availability of subject matter expertise / training
• Use of cross-domain building “blocks” to arrive at new or adaptive services
Key Adoption Characteristics Observed Industry Importance
Sources: A.T. Kearney, CapGemini

• Incentive-driven contractual arrangements
Increase
• Strong governance Responsive-
ness
• Definitive and adaptable processes: Improve
Process
•Performance management Speed
•Demand management and forecasting Cost
Savings
•SLA / SLR automation
Depth of
• Leveraging highly trained and skilled personnel Operations
• Establishment of “competency centers of 20% 40% 60% 80% 100%

excellence”
Figure 22 : Beyond Cost Savings - Agility and Competition
Organizations seeking to move beyond Wave 1 cost-driven arrangements recognize that

there are equally important drivers which deliver competitive advantage and agility.
Experienced providers and sourcing organizations plan for contract changes, performance
improvements, and escalating competencies defending their arrangements with
compartmentalization, strong governance, and automated measurements. By anticipating
change and competitive pressures, both partners accept the risks and improved process
speed demanded by business unit operations. Responsiveness and depth of MPO providers
contribute significantly to costs savings, both in the short-term and long-term.
43
How can pricing incentives be used to promote collaborative operating arrangements and gains?
Where can MPO improve go-to-market appeal?
Can risks and “false-starts” be mitigated?

• Process consistency
Critical Imperatives
• Streamlined or simplified approvals
and
• Active senior management support with client incentives Influencing Factors
• Strong escalation management processes with knowledge-based workers
• Customized or tailored arrangements to meet customer demands – current and future
• Contractual obligations must be developed in advanced to ensure roles, performance, and feasibility

• Contractual framework and structure for “gain-

Business
sharing” Performance
• Risk reductions by leveraging best practices
Gain New
• Globalized workforces taking advantage of follow- Technologies
the-sun techniques
Customer
• Definitive goals supported by measures that are Experiences
internalized by motivated client and provider
personnel Incr. Speed
to Mkt.
• Cost or downsizing is not the leading factor for
provider selection 20% 40% 60% 80% 100%
Figure 23 : Beyond Cost Savings - Time-to-Market
Tme-to-market is fast becoming the most critical driver of benefits from outsourcing
relationships. This requires process consistency coupled with adaptability on the part of the
provider, and complete clarity on roles and responsibilities on both sides of the relationship.
Alignment of interests through contract structures and cultural fit is a key enabler of time-to-
market considerations.
44
Can structured MPO agreements include more than just basic origination or servicing?
Can adaptive arrangements be realized in an era of emerging standards?
What models are the most effective?

Critical Imperatives • Robust QoS management

and • Varied skills transference and training models
Influencing Factors
• Cultural alignment between customer and provider
• Performance management tied to QoS measurements / continuous improvement
• Specialized and compartmentalized knowledge workers –no longer just about arbitrage

• Skills transference augmented with additional

education and specialization Reduce
Operating
• Hybrid BPO solutions leveraging people, process Costs
improvement, technology, and knowledge to Quality
improve process efficiency and quality Improvements
• Technology and process improvements
Alternative to
continually adopted Build Own
• Comprehensive training and transition plans by
Additional
employee, group, and process function
Capacity
• Due diligence before and after transition
20% 40% 60% 80% 100%
Figure 24 : Beyond Cost Savings - Quality and Skills
As the mortgage industry continues to develop interoperability and educational standards,

the need for quality and skills become paramount. For progressive organizations looking
beyond labor arbitrage, there are direct benefits when the provider can align culturally,
deliver, quality of service (QoS) management, and successfully complete comprehensive
skills transference.
45
How can the complexity and discrete local, state, and federal requirements be met?
What are the key performance indicators that promote conformance?
How can systemic and financial risks be mitigated?

• Risk avoidance
Critical Imperatives
• Reduce inspection, in-house complexity
and
Influencing Factors • Leverage specialized expertise
• Predefined workflow, forms, and thresholds
• Auditability and conformance
• Rules-based engines, automation, storage, archival, and disposal

• Active involvement by CCO and CRO
• Mapping of regulatory requirements, obligations,
Focus on Core Sources: A.T. Kearney, CapGemini
Processes
and retention
Regulatory
• Robust change controls Compliance
• Obligations incorporated into transferred
processes supported by governance review of Reduce
compliance Fixed Costs
• Continuous assessment of process risks using Accss to

predefined profiles, reporting, and measurements New Skills
• Forecasting of changes, new legislation, and their

20% 40% 60% 80% 100%
impact on business operations and markets
Figure 25 : Beyond Cost Savings - Compliance
As the reality and perception of consumer and investor risks develop in an industry driven
by independent state, federal, and community regulations, the compliance mandates and
reporting requirements escalate. When governing outsourcing arrangements, active
involvement by CCOs, CFOs, and CROs must be the norm. will be the norm for MPO
processes. Supported by increased automation, rules-based engines, and workflows, less
effort will be spent on inspection. Auditability will deal with end-to-end compliance and
process interrelationships. Continuous assessment of risks will be demanded by
organizations burned by non-compliance and a market in correction.
46
How can business growth be promoted using a structured relationship?
What are the key principles that must be recognized and confirmed?
How can viability and sustainability be maintained?

• Forecasting
Critical Imperatives • Client organizational alignment
and
• Financial management and incentives
Influencing Factors
• Process compartmentalization
• BPO provider ability to adapt supported by depth of process expertise
• Potential integration of divergent providers and operating characteristics (e.g., M&A, PE)

• Leveraging of best-in-class arrangements to
Access to New
quickly facilitate achievement of business goals Markets
• “Tune-up” of remaining BPO relationships to
reflect new demands and partners Grow
Revenue
• Updating of governance models including:
•Performance management Refocus
•Demand management Reduce

Customer
•Security management Response
•Change management Time
20% 40% 60% 80% 100%
Figure 26 : Beyond Cost Savings - Growth and New Ventures
Those executives who are experienced in mortgage outsourcing know that contracts, their
SLAs and negotiation approaches can be inflexible and rigid creating confrontation and
distrust. To deliver organizational growth and new business venture needs, program
sponsors must refocus their teams and processes on new markets, customers, and revenue.
Using existing MPO providers to achieve faster time-to-market, organizations are able to
leverage and achieve “tune-ups” of existing relationships without the start-stop impacts of
onboarding new partners. With the development of win-win incentives, better governance
of performance, demand, security and change become easier to manage.
47
SECTION 5
Developing the Case for MPO
The challenge for many mortgage organizations can be summed up as “where to start.” While
many firms may believe that outsourcing may provide an answer to their competitive
challenges, they must have a roadmap to follow in order to move from their current state to the
target state they wish to reach.
Whereas there are clear hurdles that must be overcome to ensure a sustainable and efficient
outsourcing relationship, the first critical success factor is the creation of a realistic business
case to evaluate the cost and benefit for MPO, and a framework with which to implement it.
Even when the company decides to “outsource internally,” by launching a captive, this
analysis should be performed.
The steps along the critical path include the following:

¿ Baseline Discovery (Figure 31)
¿ Diagnosis and Suitability:
¿ Predict (Figure 27)
¿ Analyze (Figure 29)
¿ Align (Figure 30)
¿ Prioritize and Rank (Figure 31)

¿ Business Valuation (Figure 32)
Each step in the roadmap contains and example of the critical objectives to be met and the
activities to be undertaken. This includes -- 1), the factors that will be most likely to enable
success; 2), the challenges present in the current marketplace; and 3), design of the key
performance indicators which executives should monitor on an ongoing basis.
Baseline Discovery
To begin, the executive team must determine which critical objectives must be met and what
data must be gathered to establish a baseline for measurement. Baseline discovery is a vital
first step that, surprisingly, is often neglected or given inadequate attention in the rush to
implement outsourcing. This important step is not a simple fill-in-the-blank exercise, but
requires the company to spend concerted time gathering and analyzing data. These analyses
will determine what processes should be outsourced, and will determine who the initial
stakeholders will be, as illustrated in Figure 27. Baseline data will help set the boundaries and
scope of the project, and form the basis for objectives and strategies that must be put into
place to achieve the “To-Be” state.
Stories abound about failed outsourcing initiatives, and the high drama that ensues as each
party blames each other for their shortcomings. Often, the root cause is the lack of baselining -
either it was either completely ignored or inadequately performed. As noted in Section 3, due
to the complexity and changes associated with the three Waves of mortgage outsourcing,
what was acceptable baselining for a Wave 1 process may be completely inadequate for more
complex Wave 2 or 3 initiatives.
50
Successful baselining is also highly dependent upon the identification and involvement of key
constituents. While the point of the exercise is the collection of data which leads to the
development of a business cases, baselining exercises also have the added benefit of
building constituencies for the initiative.
Thorough baselining mandates that a core group of executives come together with complete
buy-in of the goals and objectives that are expected to be achieved through outsourcing. The
act of baselining provides a mechanism to share an understanding of the economics of the
business being outsourced and drive the development of the right set of performance metrics
and measurement protocols.
Diagnosis and Suitability

Baseline data is only hard evidence that quantitatively describes the current state of cost,
performance and resources. Some level of objective advice or benchmarking should be
infused into the evaluation process in order to help shape and perform a sanity check on the
art of the possible, and predict outcomes. Obtaining some objectivity, in the form of
consultancy, case studies, or third party benchmarks helps companies determine what can be
implemented, and more importantly, what results can be expected.
To underscore the importance of objectivity, Figure 28 provides a graphical analysis of some

of the typical challenges to outsourcing. According to A.T. Kearney and CAPS Research,
nearly 75 percent of company executives are biased against outsourcing because they
believe the processes under consideration are core competencies that must not be delivered
outside the four walls of the company. Further, an additional 10 percent of companies
terminate their outsourcing partnership due to internal resistance to working with a third party5.
Internal managers in charge of key processes are very likely to exaggerate the importance of
their process to the overall enterprise for a range of reasons, the least of which is job
preservation6. Only through an objective analysis of the company, its core strengths, and
industry outsourcing trends can an effective outsourcing scope be formulated.
Current mortgage industry conditions should serve as warning bells to wake up executives to
the need to think and behave differently, destroying roadblocks which have stopped
companies from outsourcing in the past. The need to change in order to survive in an
increasingly challenging operating environment should compel executives to think 'out of the
box' relative to outsourcing adoption, scope and scale.
Baselining and prediction support the development of a number of critical analyses as shown
in Figure 29. During this step in the process, all aspects of outsourcing feasibility are
examined, along with risks, investments and organizational factors.
51
SECTION 5: Developing the Case for MPO
Determining the right scope for outsourcing requires a gap analysis in order to evaluate
opportunities in terms of their inherent risks, and assess which processes should be
contributed to scope, as shown in Figure 30. This necessitates alignment of stakeholders to
ensure that alignment of interests is supportive of implementation.
It has been found that the most successful companies set up dashboards during the initial
stages of the roadmap rather than delaying to the contract phase. Keeping the process on
track requires an iterative process and continuous measurement.
Prioritize and rank

Prioritization and ranking (Figure 31) is a necessary step to confirm processes in scope.
Scope, in turn, drives preliminary decisions about transition and governance needs. During
this step, the structure of an outsourcing partnership, the partnership will be determined along
with the processes in scope, and the stages of deployment.
Alignment of interests has been a challenge for many early outsourcing partnerships.
Prioritizing and ranking processes is conducive to promoting alignment, both internally and
with the provider.
Business valuation
During this step, financial considerations such as return on investment and contribution to
shareholder value are dimensioned in a comprehensive business case. Here, all inputs into
cost, and expected benefits are clearly described in a document that must bear the scrutiny of
a range of stakeholders.
A good business case is necessary to meet the growing demand for auditability and
compliance. The adherence and delivery of a baseline coupled with solid due diligence will
materially contribute to the expectations that the effort was objective, solidly structured, and
included business drivers with results that are auditable.
Just as during the last five years corporate auditing fees have risen by 345 percent due to
more stringent compliance laws, this type of scrutiny can be expected for today's outsourcing
arrangements. This is especially true if any portion of the process requires reporting against
federal, state, or local regulations. Rigorous baselining and due diligence is a must.
52
Prioritize To g a i n s u c c e s s
Baseline Diagnosis and Suitability Business
And Transition Governance beyond cost savings,
Discovery Predict Analyze Valuation
Align Rank organizations must
achieve several
baseline discovery
o b j e c t i v e s . Fr o m
Critical Objectives and Activities Success Enablers qualifying and
q u a n t i f y i n g
• Identify preliminary processes for assessment • Build constituencies • Definitive economics
• Performance metrics • Objectivity a c c e p t a b l e
• Establish initial stakeholders, management
interrelated
approval and operating parameters
Outsourcing Challenges processes to
• Define guiding principles of “To -Be” model and developing the
Sources: A.T. Kearney,
boundaries of outsourcing
Activities Rationale Not to Outsource principles of
• Review and confirm overall process areas to be are Core
CAPS Research
operation that will

considered in scope
Customer Termination Rationale govern the operating
• Create in-scope and out-of-scope areas and Resistance environment,.
document justifications Baseline discovery is
20% 40% 60% 80% 100%
• Set measurable goals and objectives with clear about setting the
strategies s t a g e f o r
Key Performance Indicators and Categories (illustrative) achievement without
Legal / losing sight of the
Productivity Variability Training SOP Regulatory challenges and
enablers that must be
met as part of an
adaptive MPO
Source: WNS, Innovative Relevance relationship.
Figure 27 : Baselining and Due Diligence - Discovery
Lack of innovation and

Diagnosis and Suitability Prioritize
Baseline Business a failure to fit
And Transition Governance
Discovery Predict Analyze Valuation outsourcing strategy to
Align Rank
company philosophy
are major contributors
to failure. MPO
Critical Objectives and Activities Success Enablers Diagnosis and
Suitability activities
• Train, educate, and communicate the discovery • Business intelligence • Leadership
approach, tools, and techniques define the discrete
• Leverage existing State. • “Defining Better”
personnel, technology,
• Define process, personnel, and technology “To -
Be” characteristics
Outsourcing Challenges and process operating
parameters for the
• Document assumptions, business models,
Company business model they

operating parameters that are anticipated / Philosophy Rationale Not to Outsource
needed are seeking to achieve
CAPS Research
Lack of (i.e., The “To-Be”

• Structured roles, responsibilities, and timeline Innovation Termination Rationale
state). By “defining
• Quantitatively articulate quality and performance 7
20% 40% 60% 80% 100% better ” and leveraging
• Artifact integration (e.g., audit, regulatory) business intelligence,
Key Performance Indicators and Categories (illustrative) models and indicator
SLA’s / Customer Customer levels can be forecast
QoS Conformance Alignment Satisfaction Service across areas such as
customer satisfaction,
service, alignment,
conformance, SLA's
and QoS.
Figure 28 : Diagnosis and Suitability - Predict
53
SECTION 5: Developing the Case for MPO
Experience, pragmatism,
innovation and Diagnosis and Suitability Prioritize
Baseline Business
benchmarks are Discovery Valuation
Predict Analyze Align Rank
enablers for developing
the right MPO structure.
Supported by feasibility
and discrete process
analysis, the operating Critical Objectives and Activities Success Enablers
characteristics and gaps • Conduct Feasibility Analysis • Experience • Innovation
between the “As-Is” and • Determine suitability for outsourcing • Pragmatism • Benchmarks
“To-Be” states become
• Conduct discrete financial analysis Outsourcing Challenges
apparent. Highlighting
• Perform risk segmentation, analysis & mitigation
these gaps, the issues

• Develop process compartmentalization Supplier
surrounding personnel Dependency Rationale Not to Outsource
CAPS Research
& touchpoints
strategy and transition
• Personnel strategy –retention, issues,
become obvious. Closing recruitment, and exit Performance
Termination Rationale
these gaps requires Quality
• Plan for architecture and infrastructure to support
organizational discipline 20% 40% 60% 80% 100%
• Instil organizational discipline and rigor
and rigor (see Section 6).
Mapped across the Discrete Key Performance Indicators and Categories (illustrative)
various processes
proposed for the scope, Loan Setup Indexing Post Close Broker Approval Investor Rpt.
additional dependencies
and barriers to success
can be identified and
mitigated. Source: WNS, Innovative Relevance
Figure 29 : Diagnosis and Suitability - Analyze
Steps to alignment
involve fitting process Baseline Business
discovery, prediction, Discovery Predict Analyze Valuation
Align Rank
and analysis into a
collaborative “go-
forward” approach.
Critical for identification Critical Objectives and Activities Success Enablers
are the myriad risks • Develop implementation breadth and • Collaboration • Strategy integration
which will must be depth rationale and implications • Anticipate resistance • Address complexity
identified, measured, • Validate and confirm process profile baseline
and mitigated. Outsourcing Challenges
and “To -Be” information
Understanding the Loss of

• Review results with process owners to evaluate
complexity of the process against established “fit and risk” criteria Control Rationale Not to Outsource
CAPS Research
strategy, allows the

• Map current and future processes and Poor
organization and the Termination Rationale
technology details to determine “go-forward” Vendor
potential provider to candidate based upon “gap” Process
anticipate resistance 20% 40% 60% 80% 100%
• Secure alignment
and integration
challenges. This must Key Performance Indicators and Categories (illustrative)
be achieved before Operational Financial Customer Management Political
transitioning to a new Risks Risks Risks Risks Risks
business model.
Figure 30 : Diagnosis and Suitability - Align
54
With the current and
Baseline Business
Transition f u t u r e M P O
And Governance
Discovery Predict Analyze Valuation processes fully
Align Rank
defined and
accepted by the
organization,
Critical Objectives and Activities Success Enablers prioritization of “fit”
and “risk” is assigned.
• Understand relevant prioritization and • Cultural alignment • Program framework
Stakeholder interests
rankings impacting “fit and risk” parameters • Managing expectations • Aligning interests
pertaining to the discrete processes can be aligned with
Outsourcing Challenges provider cultural fit
• Initially assess transition and governance needs
Protect capabilities through a

• Assign scores based on workshops conducted Intellectual Rationale Not to Outsource program of work.
with process owners (originally defined as part
CAPS Research
Capital
of baseline)
• Identify and prioritize processes for potential Changing Termination Rationale
offshoring based on the “fit and risk” scores and Needs
additional relevant factors (economic benefits, 20% 40% 60% 80% 100%
etc.)
Key Performance Indicators and Categories (illustrative)
Process System “Sources Workflow /
Cycles
Integrity Interoperability And Uses” Rules
Figure 31 : Baselining and Due Diligence - Prioritize and Rank
To e n s u r e t h e
Baseline Diagnosis and Suitability Prioritize
Business
02
achievement of return
Discovery Predict Analyze Valuation and investment
Align Rank
parameters, a
comprehensive
business case must be
built for each process
Critical Objectives and Activities Success Enablers
and for the entire
• Develop initial roll out plan & offshoring 3 to 5 year • Investment levels • Compelling valuation program of work.
road map defined with adoption methods • Lessons learned • Internalize globalization Included in the business
• Complete holistic financial analysis to determine case are the roll-out
economic benefits of the complete program/scope Outsourcing Challenges
plans and organizational
• Highlight fixed costs, variable costs, and Poor

Business implications for up to
investments (both initial and sustained) Rationale Not to Outsource
five years. For many
CAPS Research
Case
• Address business operational implications MPO Wave 1 and 2
As part of transition Cost Termination Rationale
Savings processes, the failure to
• Build end-to-end business case for the initiative understand the business
20% 40% 60% 80% 100%
• Secure organizational & management acceptance case significantly
Key Performance Indicators and Categories (illustrative) contributes to a
ROI / Quarterly relationship termination
Growth /
Benefits Performance Revenue Costs due to a lack of expected
Quality
cost savings. As part of
the team's effor ts,
dashboard metrics,
Source: WNS, Innovative Relevance parameters, and usage
must be defined.
Figure 32 : Business Valuation and Justification
55
CASE STUDY 1
Top 20 Mortgage Lender / Retail Bank
Preparing for Change
This relationship encompasses not only the company's mortgage operation, but its retail, and
commercial banking divisions. The institution decided to outsource over 45 different
processes ranging from mortgage banking and commercial lending to credit card and check
processing and wholesale lockbox services to one provider. The challenges of implementing
a scope of such complexity were exacerbated by the need to transition under a very
aggressive timeline.
Typically, banking operations, due to their very complexity, can take up to two full years to
completely migrate processes to an offshore workforce. This company was unwilling to wait
that long for a return on its investment, and mandated a transition of only six months. To
facilitate this transition, a team of 60 provider FTEs was tasked with work shadowing and
knowledge transfer

The company was able to outsource 44 fragmented processes, of which 22 are mortgage
processes and sub-processes, fully migrating offshore to provider teams comprised of 160
FTEs, in only six months via a carefully planned 'Big Bang' implementation and has resulted
in a relationship that works very smoothly.
The company is currently entering “Phase II” of the relationship, turning over control of
customer service functions, including early stage collections and other default mitigation
processes.
56
G overnance Demands
“At a Glance”
Process Variability
Transition Risks
 Cost Savings of 40%+ with

client savings target met for
Critical Year 1 and successive years
Processes Delivered  Highly fragmented program with
22 distinct mortgage processes
and sub-processes, process
Low Low Low Low Low headcount variations from 1
MERS Registry
FTE to 20 FTEs
Loan Sales & High Moderate Moderate Moderate Moderate  “Big Bang” transition with all 44
Origination processes transitioned within
Moderate Moderate Moderate Moderate Moderate Six months
ALS Maintenance
 Full knowledge transfer
Consumer Pay-off Moderate Low Moderate Low Moderate  Balancing and reconciliation
Underwriting QC Moderate High High High High with analysis at loan level
Government Insuring Low Low Low Low Low

Fulfillment Moderate Moderate Moderate Moderate Moderate
Operations
PMI / MIP Moderate High High High High
 Conventional, Jumbo, HELOC,
Customer Service Moderate Low Low Low Low Alt-A, Sub-prime, FHA, VA,
A/C Reconciliations Moderate Moderate Moderate Moderate Moderate Construction Loans,
Commercial Loans
Loan Audit Moderate Low Moderate Moderate Moderate
Third Party 2 Hours –5 ~ 74 Mortgage
99.00%+ for
6 months Business (160 Overall
most processes
Outsourcing Days FTE’s)
57
SECTION 6
Promoting Organizational Acceptance
American managers find it routine to develop and deploy management systems with built-in
feedback loops, yet when it comes to managing third party relationships, this discipline
generally falls away. Once an outsourcing contract has been negotiated, these very same
managers assume process is locked and the SLAs will guide performance going forward.
Naturally, this is far from the truth. Like all other management tasks, managing outsourcing
requires the same organizational discipline and rigor that is required for other corporate
programs and initiatives.
As shown in Figure 33, as soon as the company has committed to the adoption of MPO, the
hard work of creating a sustainable program begins. If implementation is successful, it leads to
growth in the relationship and in the number of processes outsourced. Growth in the
outsourcing relationship is itself a driver of change. The process of acceptance is iterative,
requiring continuous feedback, which leads to changing response models. Companies that
attempt to implement outsourcing by any other method are doomed to failure as there is no
current business environment in which change is not a constant.
All successful MPO partnerships are characterized by a sense of forward momentum. There
is no steady state in which to operate. In fact, as the mortgage lending industry moves into
Wave 3 outsourcing where more of the processes will involve complicated knowledge
transference, changes to the relationship will occur much more frequently and with greater
variability.
Executives seeking to implement MPO are uncertain about internal resistance, process
candidates, and sustainability. In particular, three key questions routinely surface:
¿ How can our managers governing MPO relationships in an environment that demands
growth and improved operating margins?
¿ How will changes in business requirements be made when the business model is not
vertical and processes are delivered by a third party? Who will be accountable and
responsible for identifying when a change must be made and by whom?
¿ Which rules of engagement must be developed and adhered to promote adoption and
growth of MPO relationships?
While these questions may seem intuitive, the inability to develop an organizational
framework, supported by rules of engagement and implemented with discipline and rigor, is
the number cause of relationship failure. In the absence of such a framework, outsourcing is
not a viable operating model for a company, regardless of the efficiencies or cost savings that
a business case promises.
Aligning at the top

Indeed, as illustrated in Figure 33, a framework is responsible for ensuring that the
relationship is adopted, is sustainable, can adapt to changing business conditions, and can
grow over time. Such a framework should be built on best practices and lessons learned. This
rigor renders the company “MPO capable,” and supports alignment between the company
60
and the outsourcing partner. Implementation of such alignment, supported with proper tools
and techniques can overcome the challenges of changing an operating model, and
integrating new players at every stage of the lifecycle.
Executive commitment is vital to the long-term success of the outsourcing program so the
establishment of a steering committee is vital. This committee is responsible for
communicating commitment to the program and governing its implementation and
operations. The group should consist of four to five high level executives from both the
provider and the company. Having a joint team to provide and evolve the vision for a multi-year
program is the best tactic to promote alignment on an ongoing basis.
Preparing the organization to be MPO capable

Once leadership has committed to implementing outsourcing, an aggressive work program
must be completed to ensure a sustainable relationship. The widespread belief that
operational risks and burden can be relegated to a third party thereby allowing the
organization to shift its entire focus on new markets, brands, and specializations, is a fallacy.
As with any delegation, outsourcing will not yield results if it is not managed rigorously and
consistently. Relying on a third party to manage the process without a dedicated internal team
to manage their outcomes is extremely naïve.
This is underscored by the questions posed in Figure 34. The answers dimension the critical
organizational roles and responsibilities required by the client. Without answers to these
questions, organizational barriers to successful implementation will flourish. Dealing
transparently with such issues as rules of engagement, competency, structure, training and
accountability will go a long way in preparing for successful transition
One of the challenges to outsourcing stems from the fact that internal personnel believe there
is an inherent conflict of interest in the demand to realign their job content and functions to take
advantage of outsourcing. Why would they willingly destroy or break-up the team that they
have fought so hard to create? Helping the organization move into defined roles and
responsibilities in the face of change is key.
Understanding the requirements for knowledge transfer is also part of becoming “capable.” A
good example comes from the experience of early adopters in the mortgage loan servicing
business. Whereas it was generally assumed that training would not be a factor because the
company only expected to outsource technical support and application development, the
reality was that a great deal of support and training was required to get these offshore teams
up to speed during transition (see Section 7).
Industry specific processes must be constantly trained or refreshed, no matter the level of
expertise of the outsourcer. Provider personnel must be fluent in sound procedures, rules, and
operational principles8. The need for transfer of skills through training is often underestimated
by both client and provider.
61
SECTION 6: Promoting Organizational Acceptance
Eliminating organizational barriers

This means that MPO transition, discussed in the next section of the report, is not a one-time
event. Rather, it is an ongoing process that changes each time substantive events in the
relationship or the business environment materially alter. The ultimate goal of the exercise is
to get past the various barriers to outsourcing success, some of which are illustrated in
Figure 35. When it comes to MPO, many of the traditional drivers that push business forward
encounter obstacles that can only be overcome effectively when the required organizational
discipline and rigor is present.
Measuring progress and moving forward

The effectiveness of organizational discipline and rigor can actually be measured when
implementing outsourcing, as illustrated in Figure 36. Effective measurement results from
deploying a number of tools and techniques in a collaborative manner with the outsourcing
partner, as illustrated in Figure 37. These tools can be applied on a grid that correlates
anticipated contribution levels and the need for business adaptability. As depicted, this
segments available tools into those that are accelerative of the relations and those that are
expansive.
Many organizations believe that once their baseline activities and business case are
completed they are ready for contract execution. However, well before the signature is dry,
the organization must be prepared to manage the MPO lifecycle. The discipline and rigor
needed to sustain, manage grow and adapt an outsourcing relationship must be anticipated
and internalized. To achieve organizational “capable9” MPO results while leveraging best-
practices and lessons learned, transition leaders must communicate and educate the
organization as to the cultural and operational challenges, tools and techniques and success
factors of the selected outsourcing model.
Organizational Lifecycle of MPO

Implementation and Improvement Successful
MPO
Sustain-
ability Achieving Organizational “Capable ”
Results
Organizational Discipline
Preparing for and Integrating Best

-Practices
and Rigor
Implement-
Cultural Tools /
Adoption Growth Challenges ation
Fit Techniques
Models
Discovering and Leveraging Lessons Learned
Adaptation
Figure 33 : Aligning Organizational Discipline and Rigor to the MPO Lifecycle
62
Preparing for and Integrating Best-Practices
Cultural Tools / Implementation

Challenges
Fit Techniques Models
Discovering and Leveraging Lessons Learned
• What are the “rules • How can • What framework • What are the
of engagement” managers sustain will yield the “commercial”
among the team geographically greatest principles for
members and with dispersed contributions? organizational
the provider? operations? adoption and
• What are the adaptation?
• Does the • How will benchmarks and
organization adjustments be metrics that are • What are the
possess the KPI made in the face important to the models that can
capabilities? of business MPO success? be aligned and
changes and implemented to
• Does the internal • Will the match the
growth? organization be
team have the organization’s
competencies • Who will be forced to adopt rigor and
necessary? responsible for iterative or discipline?
identifying incremental
• Does the improvements as • How can the
change, when,
organization have part of a enterprise adopt
and how?
the maturity / sequence of the needed
experience for “build activities?” service rigor?
MPO?
Organizational Impact
Stakeholders Employees
Suppliers Investors Activists /

Customers
Politicians
Figure 34: Achieving Organizational MPO “Capable" Results
To prepare the organization for MPO challenges and activities, critical questions must be
asked and answered. The answers to these questions will have an important and measurable
impact on stakeholders, suppliers, investors, customers, employees, and even external
players and political constituencies. Only by developing the right implementation model for
the organization based on best practices, can an organization achieve realistic and pragmatic
MPO expectations. Without a proper frame of reference, organizational actions taken can be
inappropriate for the level of internal maturity and capability.
63
Whereas corporate drivers move the organization forward, when it comes to implementing
and governing MPO, difficulties often arise because the organization is used to operating in a
'make' versus a 'buy' model.
As a result, transition barriers abound with various degrees of difficulty depending upon the
discipline and rigor within the sourcing business units and the enterprise as a whole.
Corporate Drivers...
Business Needs and

Demands … Must Recognize Potential Transition Barriers
Organizational Barriers to Success
• Labor relation issues

• Legal obligations
Delivery Competencies • Regulatory management constraints
• Organizational culture
• Service portfolio management ability
• Leveraging of existing management processes
Management Directives
• Inability to synthesize and internalize proactive
control techniques
• Achieving the scale required for efficient
outsourcing adoption
Competitive Intelligence • Unrealistic expectations and performance
benchmarks
• Inability to partner and collaborate with others
outside of the enterprise
Risk Mitigation and
Assignment
Figure 35 : Organizational MPO Barriers to Success
64
High = 10
KPI deficiencies can significantly impact A. Technology
the organizational ability to adopt, adapt, B
and change the outsourcing B. Process Knowledge
“partnership” arrangement C. Deployment Framework
F D. Transition Management
Competency of Internal Team
N
J E. Governance
Causes for Concern
F. Program Management
G. BPO / KPO Sourcing
K H. Complex Change
Causes for Management
A L Concern
H I. Commercial Principles
C
J. HR Management
E G K. Performance Management
D I L. Alignment and Resolution
M M. Legal Mgt. and Oversight
N. Regulatory Compliance
Low = 1 Deficiencies
Low =1 High = 10
Organizational Experience
Figure 36 : Illustrative MPO Baseline - Organizational KPI Capabilities
There are key performance indicators (KPIs) that must be assessed and ranked to help
develop organizational discipline and rigor. From leadership to program management to
legal management and oversight, the strength and competency of the proposed MPO
transition team must be assessed. Areas that are ranked as deficiencies must be
immediately addressed before transition can be undertaken.
65
As the organization prepares for a collaborative MPO relationship, business adaptability

techniques and methods must be increasingly robust. Depending upon the discipline and
rigor within the enterprise, the relevance of techniques employed can be expansive
or accelerative. Wave 1 and 2 techniques are best seen in the low to expansive
classifications, whereas Wave 3 adaptable methods are commonly found in the
accelerative quadrant promoting sustainability and adaptability. To mitigate internal
challenges and issues, these techniques and methods must be aligned with the
implementation models selected.
Organizational Challenges and Issues
Sustainability • To achieve a sustainable business

High model, organizations must adopt varied
Complex
Chg. Mgt. techniques, tools, and operating
Stakeholder Service
Alignment Rigor Customer
attributes –it’s more than a single
Dedicated
attribute or category
Anticipated Contribution
Org. Team Voice

Alignment Delivery
Discipline Framework Benchmarks • Expansion attributes represent the
Impact
Automation
traditional organizational preparations for
Acceleration Principles
successful MPO
Synergies Viable
Compart-
Solution
mentalization Cultural Fit • To meet the expectations of both parties
Delivery
Iterative Models of the MPO transactions, adoption and
Sequencing organizational internationalization of
Repositories
Expansion acceleration attributes must be a priority
Directives
for “Smart Clients.”
Carve Outs Suitability?
Low • Captive • Onshore
Low High
Business Adaptability • Hybrid • Offshore
• Joint Venture • Shared Services
Figure 37 : MPO Adaptability, Contribution, and Suitability Challenges
66
SECTION 7
Effective MPO Transition and Governance
One of the largest contributors to the failure of outsourcing initiatives - especially offshore
outsourcing - has been the mistaken belief that transition is an actual handoff of responsibility
from the client to its provider. Nothing could be further from the truth, as the hard work begins
in earnest when the contract is inked. Transition and governance are contact sports that
require focus, resource, clarity of approach, and discipline, as discussed in the previous
sections.
Executives expecting to step away from the delivery of operational processes, and move onto
work with a higher perceived value, such as new market development, will be disappointed to
find that a high level of executive and managerial involvement is still required in transition and
governance. This is often contrary to what is anticipated when the SLAs are negotiated and
the contract is signed.
Transition
Most transitions start out like personal relationship - both parties are optimistic about success.
Yet excessive optimism can give way to a series of behavior which can derail the initiative, as
shown in Figure 38. As a result, there is a gap between perceptions - everything is bad - and
reality... key goals for the relationship may be met, but the process is fraught with
disappointment and retribution. Rightly or wrongly, the inevitable response is to wave the
contract at the provider in an effort to beat the partner into submission. And, at an early stage
of the relationship, such animosity is hard to diffuse.
The right transition model is fairly orthodox, regardless of the industry processes in
implementation. In order to set the stage for successful transition, the sponsoring organization
should look for answers from best practices.
¿ What are the successful transition models from the MPO “As-Is” to the “To-Be” processes,
which are capable of growth and continuous improvement?
¿ What are the realistic sets of MPO expectations, measurements, and monitoring
arrangements that must be internalized for verifiable results?
¿ Which MPO management tools and techniques have proven most effective at managing
transition and governance?
¿ What are the superior MPO approaches for managing conflict, promoting collaborative
delivery, and ongoing governance oversight?
Often, companies are on their own when it comes to transition. There are a number of advisors
skilled in assisting with due diligence, business case development and goal setting. Fewer
resources are available to guide transition, which is far less predictable and more difficult to
manage.
Figure 39 depicts a model transition effort. This approach utilizes program management
disciplines as a foundation in an effort to leverage lessons learned and best practices. Just as
in the baseline and organizational discipline sections, people, process, technology, partners,
68
and regulatory components must be managed and engaged during transition. The transition
teams should be fully equipped with a complete toolkit, including process diagrams, standard
operating procedures, statements describing current and future states, fully documented
SLAs and OLAs, and workplans with and of clearly delineated activities, tasks, and
milestones.
Those familiar with continuous improvement methods will see similarities in this iterative
process. Within each of the key areas, transition definition, management, analysis,
improvement, and control criteria must be validated and approved. Focus is placed on
implementing a range frameworks including those assuring knowledge retention and
transference, risk mitigation, performance management, business controls, and continuity, all
measured by KPIs.
Governance
Fundamentally, effective governance is about applying principles of operation to promote
outsourcing viability, results, and new demands as customer needs change. Robust
governance is vital, as pointed out in an Accenture study10, the results of which are illustrated
in Figure 40. In 75 percent of cases studied, companies recognized the importance of active
governance11. The challenge when governance when designing a program is to make the
practices, communications, and discipline robust enough to ensure delivery and growth, while
not being so draconian that they lead to micro-management, extended decision making
cycles, and strained provider relationships.
Governance should not be under-funded, as the commitments made by the company to

personnel, training, and infrastructure extend beyond the transition phase and affect the
success of the program going forward. Failure to provide for sufficient ongoing governance
that supports continuous process change and transfer will prevent the company from growing
into the relationship. This hampers MPO providers' ability to respond positively to changes,
and reduces the chances of long-term success.
Figure 41 endeavors to reduce the corporate governance effort into a single graphic.
Regardless of the outsourcing Wave in implementation, all of the components required to
effectively manage the partnership remains the same. It should be stressed that governance
is an iterative process that loops back upon itself as changes are experienced.
Obviously, this chart is an oversimplification; entire books should be written on effective

transition and governance for outsourcing. Research indicates that governance is actually far
more complex than many companies anticipate; inability to recognize this fact is a major
contributor to failure. In fact, even consultants engaged to aid with transition and governance
can struggle with the uniqueness of each situation.
As the mortgage industry moves through Wave 1, implements more complicated processes in
Wave 2, and embraces the knowledge process-rich Wave 3, governance becomes even more
complex. Governance is not simply a process of examining the contract on a quarterly basis
and then hosting a series of provider meetings. MPO governance involves communication
69
SECTION 7: Effective MPO Transition and Governance
not only with the provider, but also including the various stakeholders responsible for
delivering mortgage processes.
As noted in Section 4, agility, competition, growth, new ventures and market changes all
materially influence governance needs. These requirements create needs across six
governance categories -- 1), financial management; 2), administration; 3), dynamic controls;
4), QoS; 5), benchmarking and delivery; and 6), relationship management. Each of these
categories is supported by procedures that must be tracked, analyzed and measured
according to established KPIs, including budgeting, forecasting, problem management and
escalation, demand management, compliance, availability, and reporting, to name but a few.
Any proactive corporate governance carries with it a significant level of on-going investment --
much higher than many companies expect. An industry rule of thumb for offshore outsourcing
suggests that companies should expect to spend up to 10 percent of the cost of the
outsourced processes on internal management costs. It is suspected that, in the mortgage
industry, fraught with the change and a move to electronic lending that, this number could
approach 12 to 14 percent.
Companies that do not allocate sufficient budget for MPO governance, operating under the
mistaken assumption that governance is simply contract management will be challenged to
succeed. Strong outsourcing relationships can continually adapt to changing client and
business conditions; governance is key to communicating, managing and measuring that
change.
70
CASE STUDY
Top 5 Subprime Servicer
Transitioning Successfully
The mortgage servicing division of a company that purchases subprime portfolios desperately
needed to expand, but was unwilling to invest in necessary capacity - FTEs, real estate and
infrastructure - in the United States. It determined that capacity could be obtained by
leveraging a relationship with an offshore MPO provider. Any cost savings that would likely
result were considered incidental. The company started with four key processes that would
allow them to grow without adding additional FTEs. The company needed to transition the
processes offshore within four weeks of contract signing.

Processes were migrated on schedule, with complete work teams fully engaged within four
weeks of the contract date. In order to cut the training time in half, and mitigate risk, the
company sent its subject matter experts to the provider's site to provide direct training, rather
than employing the traditional method of 'train the trainers.' Outsourced staff took classroom
instruction, moved onto servicing dummy loans, and into full production within one month's
elapsed time.
In order to achieve targeted cost savings, the relationship was structured under a gainsharing
arrangement, aligning interests and guaranteeing innovation and outsourcer buy-in.
Governance Demands
A
“ t a Glance ”
Process Variability
Transition Risks
Cost Savings of 40%+ with

Critical client savings target met for
Processes Delivered Year 1 and successive years
All processes were transitioned
offsite by the client’s trainers
Pre-Penalty Coding High High High High High simultaneously with 4 weeks
Full knowledge transfer
ARM Loan Quality Moderate Moderate Moderate Moderate Moderate
Audit
Updating Insurance Sub-prime, ARM
Moderate Moderate Moderate Moderate Moderate
Data
Obtaining Property Moderate Low Moderate Moderate
Tax Amounts
Third Party 2 months 2 Hours - 24 ~ 50 FTE’s 99.00%+ for
Outsourcing Hours most processes
71
Case Study
Challenges
Baseline Business
Discovery Predict Analyze Valuation
Align Rank
After 3 to 6 months of effort, the “real

teamwork” has just begun
Extensive Optimism Can Give Way to… …Disappointment and Retribution

• Poorly managed expectations –management
and organization believes hard work is done Reality
Level of Effort Expectation
• Ignoring organizational and geographic culture

management challenges and demands
• Use of the contract as a “club” to beat the Disillusionment
provider into “submission”
• Abdicating active transition management and
governance to external “players” Perception
• Under funding the implementation costs
• Forgetting that “Adult Supervision” is required t
Transition is Just the Start of the Real Work, Collaboration, and Results
Figure 38 : Transition Challenges
MPO transition represents the start of “the real work.” There is a strong organizational
temptation to relax after a strenuous three to six months of preparatory work. The
organization tends to believe that their work is done and it is now up to the provider to
deliver, leaving a void of operating level governance aka “adult supervision.” This lack of
engagement creates extreme challenges for the successful implementation of the
outsourcing relationship. Organizations often underestimate and under-fund the
implementation costs.
72
Ineffective MPO transition and governance are the biggest contributors to failure an
outsourcing relationship. Good transition programs include program management rigor
across all components of the program -people, process, technology, etc. The DMAIC method
is a good framework for implementing a robust transition.
Lessons Learned Program Management Best-Practices
People Process Technology Partners Regulatory Governance
A repeatable
Define Manage Analyze Improve Control and rigorous
process that
• SLA • Process Diagrams • Internal Controls • Procedures • OLA enables
• “As-Is” • Gap Analysis • “To-Be” • Plans success today
• Knowledge Retention • Cultural Baselining • Validation and and good
and Transference and Customs Preparation governance
• Acceptance Criteria • Performance and • Joint Team tomorrow
Cycle-times Assignments and
• Business Controls Delivery
• Transparency
• Risk Determination • Measurement and
and Mitigation • Change Monitoring
Management
• Security • Privacy
• BCP
• Architecture • Infrastructure
Continuous Improvement /
Quality of Service (QoS)
Figure 39 : MPO Transition Model
73
Case Study
Significant
Reliance
Partial
Reliance
No
Reliance
Unsure
25% 50% 75% 100%
Source: Accenture
Figure 40 : Active Governance to Manage Outsourcing Relationships
Active relationship governance begins at contract execution and cannot be underestimated.

Successful enterprises recognize that having a collaborative arrangement that is sustainable,
growth oriented and adaptable requires measurements, communication, and operating
parameters.
74
MPO governance is complex. It is not simply examining the contract quarterly and having a
stakeholder or provider meeting. As noted in Section 4, agility, competition, growth, new
ventures and market changes all materially influence governance needs. These
requirements create needs across six governance categories from financial to relationship
management each of which has specific metrics and procedures. MPO governance is about
applying principles of operation to promote outsourcing viability, results, and new demands.
Agility and Competition Growth and New Ventures Markets
Dynamic business conditions...
MPO Governance
...Creates unique industry challenges
Financial Dynamic Benchmarking Relationship

Administration QoS
Management Controls / Delivery Management
• Budgeting • Contractual • Problem • Availability • Automated • Vendors

terms and management SLA / SLR
• Forecasting • SLA’s • Alliances
conditions tracking
• Escalation
• Demand / • OLA’s • Informational
• Communica- procedures • Tools and
consumption exchanges
tion • Training portals
• Audits
• Targets • Cross-
• Issue • Security and • Reporting
• Change organizational
• SLA’s management privacy
management • Notification / audits
• New • Stakeholder • Compliance control limits
• Planning and • Legal
requests review
project • KPI’s • Metrics
• Shareholders
• Pricing • Demand monitoring
• Competency • Benchmarking
incentives management • Regulators
• Internal
• Trends
controls • Governments
• Defensibility
Must maintain the performance, viability, and integrity of relationship during “uncharted” conditions
Principles
Must adjust results to meet the demands of buy-backs and increasing litigation
Must have confidence and flexibility in an arrangement that can last years
Figure 41 : MPO Governanace
75
SECTION 8
Emerging MPO Models
Three waves of outsourcing were identified in Section 2. The first of these encompasses
Information Technology outsourcing (ITO). While most other industries have moved swiftly
beyond ITO to business process outsourcing (BPO) in the second wave, it is suggested that
the mortgage industry is still mired in the earlier forms of the art. The third wave, the aim of
companies hoping to capitalize on the power of outsourcing, integrates high-end knowledge
processes (KPO) with BPO.
To suggest that the mortgage industry is still mired in the first wave may seem a controversial
statement, given that amongst outsourcing's early pioneers were large, diversified financial
and mortgage institutions. Even so, the bulk of the mono-line mortgage lenders have never
evolved beyond the "toss it over the fence" models made popular by early IT outsourcing
efforts.
ITO in its early form represented the next generation of time sharing or staff leasing taken to a
higher level. Whereas it fairly effective for writing snippets of code, it is woefully inadequate for
companies expecting to move their performance to the next level. Effective outsourcing of
complex mortgage business processes required in the mortgage transaction requires more
than labor arbitrage. It requires true collaboration for performance and innovation.
The transition to MPO has been occurring since the beginning of this decade. For the last
several years, larger diversified financial services firms have been evolving their outsourcing
strategies with an eye not only to saving labor costs, but also reducing capital expenditure.
Initially, many of these firms adopted the captive model, building huge offshore organizations
to develop software to put this in context. Forrester estimates that, over the past two years,
300 financial services companies have built captive offshore enterprises for IT, and 60 percent
of those are struggling because it costs more to operate these centers than to outsource the
work to established third parties12.
This has led to a massive rethinking of outsourcing models. Rather than establishing de novo
operations, companies are trying to re-engineer their models, looking at opportunities to
onsource work to providers in a hybrid model, or, in some cases, closing down or selling their
captive operations. The maturation of models is depicted on Figure 43.
This model evolution was illustrated in Figure 6, depicting the methods companies are using
to send work outside their four walls. Today, most companies serious about capitalizing on the
benefits of effective outsourcing are investigating the implementation of hybrid models
MPO hybrids suggest that the old geometry of mutually exclusive quadrants no longer exists..
New models are about finding the model that best meets the needs of the organization,
regardless of ownership, physical location or nationality of staff workers. It is all about
structuring an operating model that is capable of delivering the work to the quality
specifications required in the allotted time at the right cost13.
Therefore, as companies move from the first wave to the second, they redefine their ways of
working to allow for collaboration between and integration of internal and third-party
resources. In the process, it becomes clear that both parties are jointly responsible for
continuous improvement and productivity. This makes it far more difficult to manage by solely
78
by contract. As illustrated in Figure 44, companies are already realizing that other methods
must be used to evaluate relationship success. For example, strategic reviews are slowly
replacing contract reviews to holistically examine the relationship14.
Increasingly, outsourcing is not about one company contracting with another; outsourcing is
about companies forming partnerships and sharing the resulting gains. As shown in Figure 42,
there are several reasons that companies are looking at gainsharing structures. Perhaps chief
among them is that this type of mutually beneficial arrangement fosters a focus on continuous
improvement by all parties. Gainsharing often promotes stronger commitment, releases the
company from providing all of the upfront investment, and may lead to greater innovation.
One variation on this theme is the Build, Operate, and Transfer (BOT) model. Interest in this
model is appearing with more frequency as companies understand the challenges of setting
up their own operations. In a BOT, an outsourcing provider is engaged to build out a company
to deliver outsourced processes, most often offshore. This involves all aspects of set up and
operations though stabilization - securing the real estate, procuring the infrastructure and
recruiting, training and equipping employees. The outsourcing firm is then paid a premium to
manage the operation for a set period of time, perhaps five to seven years, after which time the
lender typically has an option to take back the new entity.
Another, even newer model currently emerging is the Vendor Assisted or management
contract model. This is similar to BOT with the exception that the lender fronts the capital to
start the company and employs all FTEs recruited by the outsourcing partner. Under this
model, the outsourcer primarily functions as a paid consultant during the setup phase and
then acts as a professional manager until such time as the lender is ready to take over the new
entity.
The decision to implement an outsourcing model should be made separately from a decision
on geography. Often, and sometimes for political reasons, the two decisions are confused,
leading opponents of outsourcing to argue that third party delivery is synonymous with moving
processes offshore. This is clearly not the case as there are many good third party providers
operating onshore. As MPO offshore firms respond to political pressure by opening up U.S.-
based arms or subsidiaries, decision making is likely to become even more confusing.
As companies push further into Wave 3 outsourcing, it is expected that they will have the
sophistication to select whichever option makes sense. Similarly it is foreseeable that
outsourcing teams will operate on a virtual basis, expanding and contracting as business
needs require. This is the future promise of outsourcing, and frankly, what mortgage lenders
have sorely needed for many years. Maturing outsourcing arrangements will allow lenders to
adapt instantly to changes in mortgage loan demand without altering their core footprint,
alleviating politically costly layoffs.
What this all boils down to is captured in Figure 44. The emerging trends in MPO models will
bear little resemblance to the models companies implemented in the past. Today, firms are
shoving everything they know about their goals, their capabilities and those of their potential
partner through a MPO “filter.” Taking far more information into account than ever before,
along with lessons learned from past experience, they are devising solutions that are
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SECTION 8: Emerging MPO Models
increasingly robust. Whereas the results will vary for every company, pricing models will
evolve, and third-parties will become more skilled at providing services to a range of different
sized companies. As this occurs, pricing models could change, similar to what has already
occurred in Wave 1 and 2 outsourcing.
Some companies are already moving in this direction, and the trend is expected to accelerate.
This movement presents a substantial opportunity for the mortgage lending business. While
the adoption of outsourcing models in the mortgage industry has historically lagged behind
that of other industries, lenders now have the opportunity to learn from their experience and
adopt proven practices for structuring hybrid outsourcing arrangements, which can deliver
innovative solutions to their needs.
Lenders are cautioned to remember that complex transactions, such as the mortgage loan,
cannot be delivered in a simplistic process. Companies looking for a "silver bullet" will be
disappointed. The hard work required to structure more complex outsourcing arrangements
will be continuous as the MPO lifecycle, described in Figure 33, iterates.
As they adopt the third wave of mortgage outsourcing, mortgage professionals are struggling
to gather the best practices required to address the complexity of multi-faceted, multi-year
relationship mortgage service models. Needless to say, this information is difficult to obtain, let
alone leverage. In MPO Wave 3, much like Wave 2, the implementation options are no longer
binary. Increasing provider capabilities and specialization, coupled with shortened
organizational ROI expectations, contribute to increased risks and exposures.
Examples of this sourcing sophistication is evident in Wave 3 processes which encompass

securitization and secondary markets, exception delivery processes - default management,
foreclosure, collections, real estate owned, and bankruptcies. As a result, concerns about risk
management, regulatory challenges, growth, competencies, and profit management are key
subtexts within Wave 3 outsourced scope.
No where is this more evident than in the headlong rush toward the all-electronic mortgage. As
illustrated in Figure 45, the eMortgage workflow is already very complex. Most experts agree
that it will transform the mortgage business. Settlement will conclude in days versus weeks.
Sourcing documents will be required in hours instead of days. This will have a drastic impact
on how outsourcers interact with their mortgage lending clients. It has a strong potential to turn
their current contracts upside down.
Traditional mortgage process outsourcing firms will have to come to grips with the fact that
eMortgage outsourcing will not be a function of throwing more bodies at a problem. It will be
about managing automation and utilizing highly skilled workers to swiftly process exceptions.
SIDEBAR: Evolving Provider Selection

It's not just outsourcing models that have evolved over the past few decades, but also the
methods lenders are using to select and align with their outsourcing partners. Historically,
smaller lenders would call on up to three vendors they were familiar with, requesting
competitive bids on discrete processes. Larger lenders with full scale procurement
80
departments might forward a Request for Proposal (RFP) to a number of providers. In both
these cases, the evaluation and selection was predicated on reducing cost, not creating
value.
Smaller lenders typically did not have the in-house expertise to create a viable, documented
business case and perform adequate due diligence on the provider community. Because
providers were forced to make many assumptions about the lender's operation in order to
submit a bid, 'as is' operations were not as assumed causing problems which were later
blamed on poor due diligence, cultural differences, and general lack of provider capability.
Larger lenders did not fare all that much better. Providers had to make a great many
assumptions about the lender's operation, which sometimes led to proposed solutions that did
not resonate with program sponsors. The best the provider could hope for was to be among
the shortlisted firms, and receive more information as the sourcing process evolved.
Today, the process has matured significantly. While RFPs are commonly used by lenders at all
levels, the provider selection process usually starts with workshops where the lender makes
key staff members available to answer questions and to validate any assumptions. This
promotes the same understanding of the current state, requirements, issues and
opportunities, creating a level playing field, giving proponents the wherewithal to propose
innovative solutions that meet the lender's needs.
Best-in-class companies, whether large or small, form sourcing teams that include
representatives from both the sponsoring department as well as all the company's enabling
units: compliance personnel, IT security, finance, legal, HR along with an executive sponsor.
These teams are able to support an RFP process which is designed to leverage the expertise
of the entire organization, and connect the dots with other change programs. Members of this
group develop comprehensive solution specifications, review the resulting proposals, visit
potential partner worksites, and evaluate security measures and worker abilities. After the
contract is signed, representatives of this team often become part of the steering committee
that governs the partnership throughout the life cycle of the relationship.
Given the evolution of the outsourcing industry, solutioning, proposal and contracting
processes have evolved greatly. Yet the factors which make or break an outsourcing
relationship are often ignored. Key to the success of provider selection is a focus on
intangibles - flexibility, alignment of interests, service culture - yet even best-in-class sourcing
processes do not factor in the so called 'soft attributes' which drive partnership success. Most
selection processes become mired down in checklists, financial modeling, service credits,
and penalty clauses, while assessing the compatibility of ways of working gets short shrift. In
advance of selection, savvy clients anticipate a wide range of likely scenarios - spikes and
declines in volume, regulatory changes, changes in personnel - and assess the 'fit' of the
provider's response model. As the industry is able to better quantify the ingredients of a good
relationship, the selection process should eliminate the range of unknowns, evolving to be a
more accurate predictor of relationship success.
81
Gainsharing is a financial technique to help relationships to remain sustainable, adaptive,

and able to grow; it focuses on continuous improvement. The application of gainsharing
can deliver up-front investment, pooled resources, and more importantly, on delivering
innovation.
Continuous
Improvement
Deliver Up-Front
Investments
Create Pooled
Commitment
25% 50% 75% 100%
Source: Accenture
Figure 42 : Gainsharing Gains Favor
82
Implementation and Geographic Model Characteristics
Adoption Rate / Continuous Improvement

Domain Knowledge / Process Leverage
Leveraging Cross-Domain Knowledge

Internal Service Delivery Disciplines
Ability to Exit / Divest Arrangement

Control, Governance, and Security
High
QoS / Performance Improvement
Implementation Risks and Time

Sustainability of Arrangements
Moderate to High
Regulatory and Compliance

On-going / Per “Unit” Costs
Moderate
Vendor Dependency
Capital Investment
Low to Moderate
Largest Growth
Captive
Models –Proven and Emerging
Third-Party
Hybrids
Potential Geographic
Implementation Variations:
- Domestic
- Offshore
- Global / Agnostic
Figure 43 : Operational Models: Proven and Maturing
Often, outsourcing models are confused with geographic implementation decisions. There
are three primary MPO models captive, third-party, and hybrid. The geographic strategies
within these models include domestic, offshore, and a global or agnostic combination. Each
of these MPO approaches and choices were assessed across over a dozen implementation
characteristics. These ratings provide a sourcing organization a quick view of what are the
most important criteria and which general traits meet, exceed, or under-perform the
organization's specific requirements.
83
Emerging trends in MPO relationships require a new “filter” to understand and evaluate “the
deal.” However, various pressures are transforming existing relationships. With the
recognition that single process outsourcing (SPO) is a Wave 1 technique, the trend towards
multi-process outsourcing is growing. As MPO takes hold, deeper expertise and
specialization will be delivered by providers.
“The Filter”
Emerging trends Mortgage BPO is incorporating KPO
require a and Increasing Specialization
Attributes and Emerging Trends comprehensive
for MPO understanding of
all aspects of the
The M&A Driven Contract collaborative
outsourcing
Return on Successful Adoption
KPO
Experience, Experience, Experience relationship.
BPO Emerging
Market and
s
Vendor Advisory Services / Partner financial ITO se
pressures are ces
o
Global Services / Geographic Approach radically Pr
d
transforming an Maturing
Seeking “non-Linear” Jumps in QoS existing ns
relationships into t io
nc
Holistic Approach -- in # of Processes dynamic Fu
operating r of
Gain Sharing / Risk Sharing structures. be Mature
m
Active Nu
Innovation. Lenders are seeking participation,
providers who can deliver more dedicated
than per the SLA. As the number personnel, and
precise
1980 2010
of processes increases, so do the
risks, governance demands, measurements
savings, and growth potential. yield consistency
and growth.
Figure 44 : Emerging MPO"Filter”
84
External eRecording Servicing
Docs
Online eOrigination eDoc Secondary

Application & Prep eClosing Investor,
Underwriting Aggregator
eDocuments
eSignatures
Service eNotarization Electronic Electronic
eDisclosures Ordering: Vault Vault
Credit
Flood Buyer Seller
Hazard eNote Data, Messaging & Control
Title
MI MERS ® eRegistry
(National eNote Registry)
Source: Mortgage Bankers Association MISMO eMortgage Workgroup
Figure 45 : eMortgage Process Workflow
For those mortgage professionals who have been active in eMortgages over the last five
years, this diagram should be very familiar. Reprinted with permission, it represents an
emerging challenge for both the sourcing organization and provider. The adoption of
eMortgage standards including origination, secondary investor and servicing, will rapidly
escalate as a result of the mortgage market correction. The mortgage industry embrace will
force MPO providers to innovate existing outsourcing solutions offering “leap-frog”
capabilities to those clients seeking to improve margins, securitize faster, reduce warehouse
lines, et al, without capital investment or retooling of their workforces. After nearly a decade
of struggle and work, it may be the MPO relationships that have the most pronounced
impact on eMortgages in 2008 and beyond.
85
CASE STUDY
Top 10 Mortgage Lender and Retail Bank
Evolving a Relationship over Time
This outsourcing partner had an established KPO relationship when the company started to
consider outsourcing certain critical mortgage processes. The company had previously
outsourced some financial modeling in order to obtain assistance formulating pricing
strategies for various mortgage loan products. That relationship proved successful, so the
company evaluated outsourcing additional MPO processes, namely pre-funding and post-
closing processes.
As a result of the evaluation and subsequent engagement the outsourcing partner is now
providing 320 FTEs to deliver the five processes shown in the accompanying chart.

Speed to close and fund, cost savings and accurate indexing are some of the key benefits
delivered in this relationship. As soon as the company's branches receive a loan application,
the documents are scanned and uploaded into the LOS where they are routed to the partner's
loan processing staff.
Loan document indexing, data capture, income verification and condition clearing are all
performed by staff within a very short time frame, usually within two hours. Since, for all intents
and purposes, the scope is, a real-time process, SLAs require high accuracy levels for such
factors as keying errors which can kill a mortgage deal.
Governance Demands
“At a Glance”
Process Variability
Transition Risks
Cost Savings of 40%+ with

client savings target met for
Critical Year 1 and successive years
Processes Delivered
Transition staggered over 6
months
Real time process, with large
dependency on branches
Underwriting Data High High High
High High Migrated processes through
Capture
onsite “Train the Trainer Model”
Pre-Funding Indexing Low Low Low Low Low
Post Close Indexing Low Low Low Low Low Agency Conforming, Jumbo,
Super Jumbo, Ultra Jumbo,
Customer Service Option ARMs, HELOC /Close-
Payoffs & High High High High High End Second, Alt-A
Authorizations
~ 320 FTEs
Third Party 6 to 12 months 2 Hours –24 99.00%+ for
(70 KPO, 250
Outsourcing Hours most processes
BPO)
86
SECTION 9
Key Findings
In the preceding sections, the following questions were explored:

¿ What are the market dynamics that are impacting mortgage firms as they attempt to deal
with a market in transition?
¿ What are the outsourcing trends in general and in the mortgage industry?
¿ Which mortgage processes are candidates for outsourcing?
¿ How do mortgage companies move beyond cost savings when outsourcing?
¿ What are the steps in formulating an outsourcing strategy?
¿ How can the organization prepare to accept outsourcing and accelerate its benefits?
¿ How can this outsourcing arrangement be successfully transitioned and governed for
initial and long-term results?
¿ Which new MPO models are emerging?
The key “take-away's” from this report are numerous. Of the insights and lessons learned put
forth in the previous sections, here are some of the most critical:
¿ The intersection of market conditions and declining industry productivity creates a climate
which will force the mortgage industry to re-evaluate its target operating model. This will
force lenders to seriously consider outsourcing as a tool to move the dial relative to
efficiency, scalability, variability and innovation.
¿ Understanding the three “waves” of outsourcing is a critical step when assessing the
potential benefit for any organization considering initial or increased adoption of MPO.
Only by framing the discussion appropriately for organization deployment can mortgage
process outsourcing survive the initial transition efforts and become sustainable and
adaptable. Organizations seeking to implement MPO Wave 3 processes without first
adopting (or experiencing) Wave 1 and 2 will severely limit their chances of success.
¿ Driven by benefits that go beyond cost saving, more complex multiple process
outsourcing approaches have become preferred over single process outsourcing
relationships .Sourcing organizations are working with their MPO provider, to secure the
“corporate fuel to leap levels” within mortgage processes resulting in increases in quality,
competitive capabilities, and customer complexity. Then implications of these
arrangements are decreasing costs, capital investments, and cycle time.
¿ Framing the MPO relationship beyond cost savings requires that the organization ask the
right questions not only of the provider but from their own personnel. Too often, there is an
expectation of “complete” once the contract has been awarded resulting in an inability to
move beyond cost reduction little consideration given to agility and competition, time-to-
market, quality and skills, compliance, or growth.
¿ Clear MPO goals, objectives, and measurements must be defined not at the end of
baselining, but at the beginning. Without a detailed foundation on which to design and
build outsourcing relationships, the business case and provider selection will be
noticeably flawed.
88
¿ Wave 2 and 3 outsourcing requires a organizational discipline. To be able to control and
manage changing process needs, internal personnel must align their roles and
responsibilities and adopt strong service delivery techniques. Service management rigor
will be required to achieve more collaborative outsourcing provider relationships often
termed as “risk-sharing” or “gainsharing.”
¿ The recognition that each model must be tailored to the organization's situation and
requirements is a key learning. Too often, internal teams and advisors use generalities
when designing outsourcing relationships, resulting in structure and relationship that may
be unsuited to the needs of the mortgage industry and a specific customer's demands.
¿ The adoption of eMortgages will be rapid beginning in 2008 as executives seek straight-
through processing of mortgage products. This will be driven by organizations seeking
lower costs to originate and service portfolios and “bundles.” Others will be looking for
quality and certainty within the secondary markets, taking advantage of GSE desire for
electronic products and the general risk reduction associated with these loans. Here MPO
providers will offer a life-line and “leap-frog” capabilities for lending organizations seeking
to avoid “home-grown” solutions and capital investment.
With the expected acceleration of eMortgages by the industry, the need to avoid capital or
fixed investments should open up new channels of opportunity for providers within their
existing client base and for those dogmatic lenders who are “waiting for the right time.”
The time for the implementation of mortgage process outsourcing has arrived, driven by the
market conditions, greater expertise on the part of providers, and yes, the secondary market
makers who have been preparing for this time since early 2003. If there is such a thing as a
“perfect mortgage storm” where all the conditions align to the changes in operating models
incorporating eMortgage, and Waves 2 and 3 MPO in an industry desperately seeking
streamlining and innovation, this is it.
89
APPENDIX
Individual Mortgage Process
Cluster Rankings
Cluster rankings represent the visualization of mortgage process rated on different criteria as
presented in Section 3. While these processes converge into three primary Waves or clusters,
shown independently, they are not as clear to see. Many organizations often view the vertical
axis without appreciating their interrelationships resulting in an analysis that may be flawed.
Only by integrating multiple dimensions can the true nature of process complexity, interaction,
and implied dependency be appreciated and applied.
high 49 54
52 35 56
51 20
55 14 34 50
19 3 33 8
16 53
4 46 48 28 30
12 13 37
23
29 21
43
24
38
Financial / ROI
36 44 42 7
40 32
41 45
26 18
31 27 22
17 1
39 47
15
2 9 10
11
5
25
6
low
low Complexity high

1. Financial / ROI mapped to Complexity
high 52 35 38 54 56
20 34 53
55 14
51 33 8 49
48 30
37
29 32
Transition Time
7 50
19 22 21 45
17 18 23 12 16 28
1 6 26
3
43
15
4
27 9 10 13
2 36
5
42
39 24
41 40 44
11 46
25 31
low 47
low Complexity high

90
2. Transition Time mapped to Complexity
54 56
high 47 50 16
46 3 23 29 7 53
25 17 44 12
41 31 27 26 19 5 51 45 11 21 39
14
2 36 6 9 43 37 28
4 15 22 35
40 24 34 49
42
55 30
8
Process Maturity
10 48 32 20
13
38
52
18 1
33
low
low Complexity high

3. Process Maturity mapped to Complexity
55 56
high
8 54
49
10 20 33 53
1
48 37 52
51
29 30
35 50
21 14
5 18
36 17 6 13 16
9 12 28
38
47
19 34
27 26 22
23 40 43
42 46 24 32
31 39 45
41 2 4 44 3 15
7
low 25 11
low Complexity high

91
4. Implementation Risks mapped to Complexity
APPENDIX:
Individual Mortgage Process Cluster Rankings
53
Growth 51 50 54
37 33
56
8 20 55
49 52
48 18
35 21 45
2 32 28 30
27
9 10 12
36 14 43
29
7
15 44 46
17 42 38
31
23 19 22 16
24 40 13 34
1
47 3 26
5 6
4 39
Costs 11 25 41
low Complexity high
5. Security / Privacy mapped to Complexity
50 56 54
high 51 49 35 52
10 53
20 33 55
37
48
12 28
Governance
Challenges
34
32
30
1 8
18 21
19
29
17
36 27 38
39 46 43
40 14
6 5
47 23
41 22 9
25 11 24 13
31 15 26 3 7
low 2 4 44 42 16
45
low Complexity high
6. Governance Challenges mapped to Complexity
92
GLOSSARY
An acronym for Business Process Outsourcing (BPO), a sourcing model
wherein a company transfers simple to complex processes to a third party
provider. The processes can include both voice and data processes enabled
BPO by technology. Benefits include cost reduction, standardization, process
improvement, increase in quality and faster response time. The work is
conducted at a provider operated site, which can be nearshore or offshore, and
governed by a contract, service levels, and rules of engagement.
This sourcing model is characterized by the establishment of a company-

managed and funded internal onshore or offshore operation which provides
one or more shared services aggregated across the enterprise. The processes
delivered can include back office or middle office, industry specific processes.
Captive It is intended to function and operate using commercial third-party processes,
including transfer pricing. Business case benefits include leverage of scale,
harmonization and standardization, and consumption management in addition
to cost. It is sometimes referred to as internal outsourcing.
Although collateralized debt obligations (CDO) as a term are often used

interchangeably with mortgage backed securities (MBS) they are not
CDO synonymous. It is defined as a security backed by pool(s) of assets, bonds, or
loans.
An analysis technique to understand and represent like processes for the

Clustering purpose of interpreting relationships, risks, and complexity (to name but a
few).
A contractual outsourcing arrangement wherein cost savings are shared on a

pre agreed basis which may include thresholds or origin of investment.
Gainsharing Gainsharing is often implemented to promote client/provider alignment,
innovation and efficiency.
Information Technology Outsourcing (ITO), broadly defined as the outsourcing

of application development, maintenance and operations, was widely adopted
ITO in the 1980s and 1990s as a means to reduce IT costs by taking advantage of
the cost arbitrage offered by scale and geography. ITO is considered the first
wave of outsourcing; BPO is considered the second wave.
An acronym for Knowledge Process Outsourcing (KPO). KPO is emerging as

an outsourcing speciality providing highly complex analytical and decision
KPO support processes such as marketing analytics, financial analysis and
business/market research. Wave 3 outsourcing includes KPO.
A technique used by outsourcing organizations to move processes “As-Is” to a

delivery center under its control. Initially no process improvement is attempted
in an effort to simplify risks and reduce transition time. Over time, processes
“Lift and Shift” and workflows are reengineered and new technologies implemented to deliver
a range of benefits such as cost savings, performance improvements,
scalability and standardization.
In this context MBS or Mortgage Backed Securities primarily refers to the

residential markets (or RMBS). MBS are securities that have been created
MBS from “bundles” of mortgages grouped by type, terms and risks. These
underlying mortgage instruments are sold by secondary investors in standard
denominations to market funds or institutional investors.
Mortgage process outsourcing (MPO) encompasses the activities, service

MPO levels, and mortgage business processes performed under contract by a third
party business process outsourcing provider.
Subject Matter Expert a person highly skilled in discrete processes in a

function or domain, in this instance the mortgage industry. S/he serves as a
SME point of information for process delivery requirements, transition priorities, or
governance.
An acronym sometimes used for Single Process Outsourcing. Often

associated with Wave 1 contracts, outsourcing providers are contracted to
SPO lower the cost of a single and sometimes troubled mortgage process. For the
most part, it has been abandoned in favor of multi-process relationships in
order to gain greater quality, efficiency, and scale.
93
List of Figures
Figure 1– Securitization vs. Agency / Non-Agency MBS Issuance 10

Figure 2 -- Mortgage Asset Contribution to Growth 11
Figure 3 -- Total Mortgages vs. Delinquencies 11
Figure 4 -- 40 Years of Outsourcing 15
Figure 5 -- "Waves" of Outsourcing Pressures 18
Figure 6 -- Outsourcing Models and Relationships 19
Figure 7 -- Changing Market Conditions 20
Figure 8 -- ITO vs. BPO Growth 21
Figure 9 -- BPO Mortgage Market Growth 21
Figure 10 -- Origination Volume vs. Net Income Per Loan 28
Figure 11 -- Loan Officer Productivity vs. Costs to Originate 28
Figure 12 -- Homes Sales vs. Average Loan Balances 29
Figure 13 -- Mortgage Process Value Chain 30
Figure 14 -- Individual Process Rankings: Production and Product Sourcing 31
Figure 15 -- Individual Process Rankings: Loan Mgt. and Processing 31
Figure 16 -- Individual Process Rankings: Underwriting, Settlement, and Funding 32
Figure 17 -- Individual Process Rankings: Secondary and Investment Markets 33
Figure 18 -- Individual Process Rankings: Service Management Processing 33
Figure 19 -- Individual Process Rankings: Service Management Specialized / Exception Delivery 34
Figure 20 -- Mortgage Expense Allocation by Major Segmentation 34
Figure 21 -- Mortgage Processes Weighted Cluster Rankings 35
Figure 22 -- Beyond Cost Savings: Agility and Competition 43
Figure 23 -- Beyond Cost Savings: Time-to-Market 44
Figure 24 -- Beyond Cost Savings: Quality and Skills 45
Figure 25 -- Beyond Cost Savings: Compliance 46
Figure 26 -- Beyond Cost Savings: Growth and New Ventures 47
Figure 27 -- Baselining and Due Diligence: Discovery 53
Figure 28 -- Diagnosis and Suitability: Predict 53
Figure 29-- Diagnosis and Suitability: Analyze 54
Figure 30 -- Diagnosis and Suitability: Align 54
Figure 31 -- Baselining and Due Diligence: Prioritize and Rank 55
Figure 32 -- Business Valuation and Justification 55
Figure 33 -- Aligning Organizational Discipline and Rigor to the MPO Lifecycle 62
Figure 34 -- Achieving Organizational MPO "Capable" Results 63
Figure 35 -- Organizational MPO Barriers to Success 64
Figure 36 -- Illustrative MPO Baseline: Organizational KPI Capabilities 65
Figure 37 -- MPO Adaptability, Contribution, and Suitability Challenges 66
Figure 38 -- Transition Challenges 72
Figure 39 -- MPO Transition Model 73
Figure 40 -- Active Governance to Manage Outsourcing Relationships 74
Figure 41 -- MPO Governanace 75
Figure 42 -- Gainsharing Gains Favor 82
Figure 43 -- Operational Models: Proven and Maturing 83
Figure 44 -- Emerging MPO "Filter" 84
Figure 45 -- eMortgage Process Workflow 85
94
Footnotes
1 NASSCOM-McKinsey Report 2005- Extending India's leadership in the global IT and BPO industries.
2 CRM Daily.com, “What's next for the outsourcing industry?” - Nandini Lakshman , June 22, 2007.
3 ibid.
4 Mortgage Banking, “The LOS Marketplace”, Rick Grant, December 2006.
5 CAPS Research, A.T. Kearney and ISM, “Succeeding in a Dynamic World: Supply Management in the
Decade Ahead”, May 8, 2007.
6 “Big Accounting Firms Reap the Rewards of Sarbanes-Oxley,” Jeremy Grant, Financial times, August
23, 2007, pages 16 and 19.
7 “Getting to Better” - Deborah Kops, January 2007, Global Services, www.globalservices.com,
pages 58-59.
8 WNS has created the “GURUKUL - The Mortgage Learning Academy” for their outsourcing
relationships to continually educate their personnel on the mortgage industry, changing products,
and operational complexity.
9 “Are You Capable” - Deborah Kops, December 2006, Global Services, www.globalservices.com,
pages 82-63.
10 Accenture and Economist Intelligence Unit, 2004, Global Survey: High Performance Outsourcing -
Best Practice from the Masters, 2004.
11 ibid.
12 Forrester Research, “Shattering The Offshore Captive Center Myth”, Sudin Apte, April 30, 2007.
13 Innovative Relevance - Realigning the Organization for Profit, Mark P. Dangelo, Chapter 9,
ISBN 0-595-67081-4.
14 Sourcing Interests Group - Atlanta Regional Meeting (Current State and Future Trends in IT and
Business Process Outsourcing), KPMG LLP, 2007.
95
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97
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98
About the Authors and Contributors
Authors
Mark P. Dangelo Mark P. Dangelo is the principal and creator of the Innovative Relevance
organization, books, and intellectual capital. For over 20 years, Dangelo
has assisted hundreds of clients to understand and profit form globalized
operations, technologies and workforces, both domestically and
internationally,. He has also advised numerous Fortune 500 firms and
their executives on M&A efforts, transformations, operational
efficiencies, and organizational restructurings.
Within the mortgage and FSI markets, Dangelo's experience and

qualifications have been created from a hands-on, pragmatic foundation
of business and technology assignments and clients. His thought
leadership, expertise, and corporate brand (i.e., Innovative
Relevance®) are recognizable within several industries through
association publications, articles, speaking, podcasting, and books.
Dangelo works independently with a host of international individuals and

organizations helping teams understand the relevant application of
innovative ideas. Within the industry, his writings have mushroomed into
a widely read industry column, tradeshow appearances, and a
communication leadership role within MBA ResTech.
Rick Grant Rick Grant is founder, director and principal of Jim Thorpe, Pa.-based
Rick Grant & Associates (RGA). He is responsible for the company's
overall business strategy and continuous client expansion, and guides
the leadership team, overseeing the development and timely execution
of company initiatives.
Grant has more than 25 years experience with multi-media technologies

and journalism. His accomplishments include the creative concept,
design, content development and production of Internet marketing
collateral (podcasts, Blogs, webinars, etc.). His roles include audio/video
producer, online producer and host of a live radio show. As a journalist,
Grant held the title of editor for multiple publications. His articles have
been featured in national newspaper, magazine and online publications
and he is recognized as one the first bloggers in the financial industry.
Grant continues to provide his insight and expertise as a frequent
contributing writer for top financial publications, as a featured speaker
and host at national conferences and seminars.
Contributor
Amit Goyal Amit Goyal is Vice President, WNS Global Services, a major offshore
BPO provider with a focus on the Banking, Financial Services and
Insurance industries. He drives the growth of WNS mortgage services
practice, and specializes in implementing large, complex programs for a
range of financial services clients including mortgage lenders,
commercial lenders, commercial real estate lenders and personal
lenders. His 11 years of experience includes increasingly responsible
roles at WNS, and the set up of two Indian BPO start ups, focused on
delivering knowledge process outsourcing services to US and UK based
clients.
99
About WNS
Founded in 1996, WNS commenced operations as the captive back-office operation of British
Airways in India. In 2002, British Airways divested their controlling stake in WNS when Warburg
Pincus, a leading private equity firm, assumed control of WNS to enable the company to offer
services as a third party provider. From 1,300 employees delivering 30 processes for one client in
2002, to over 17,000 delivering over 600 processes for more than 150 clients, WNS is now
recognized as a leading provider of offshore business process outsourcing services. In 2006, WNS
completed an initial public offering on the New York Stock Exchange and is now traded under the
ticker symbol “WNS”.
WNS provides front and middle office services to industry sectors such as financial services, travel,
healthcare, insurance, consumer products, industrial and infrastructure. Back office services
include finance and accounting, transactional human resources, and analytics.
WNS operates from global delivery locations in India, Sri Lanka, Romania and UK. This allows us to
customize delivery based on client requirements keeping in mind the specific characteristics of each
location, e.g., quality of talent available, infrastructure availability, and business continuity.
Mortgage Banking Services

Within the mortgage industry, WNS is the largest BPO provider of back office operations to US
based clients. WNS’ services today encompass the entire “Mortgage Ecosystem” including clients
across the industry - wholesale lenders, retail lenders, investors, reverse mortgage lenders, lender
services providers, private mortgage insurance companies and servicers.
Over the past four years, WNS has built a significant body of expertise in the mortgage industry
handling over 100+ distinct processes for mortgage clients from loan origination to loan servicing.
Some of the processes we deliver include: Loan Doc Indexing (DLM Solution), Investor Loan
Delivery, Post Close Audit, Final HUD 1 (Doc Follow-up) & Post Closing, Underwriting QC, Pricing
(Quotes and Locks), Closing, Pre-Underwriting Loan Processing, Policy Audits, Compliance Audits,
Purchase Advisory, Pre-Payment Penalty Coding and Authorization, and Customer Service.
The intent and purpose of this report is purely for informational dissemination purposes only. WNS and the authors have made no attempt to
verify the reliability of sourced information and cannot be held responsible for any areas of concern with the information's usage. This report
should not be construed or taken as professional advice or statements of direction.
Any result taken by the reader, its organization, or related parties either directly or indirectly are at the sole discretion and responsibility of the user/
reader. The information contained in this document is not a substitute for proper analysis, research, legal advice, accounting, tax or professional
services and use of the data, its conclusions, and projections are at your own risk. WNS, the authors and their organizations, and contributors
cannot be held liable for negligence, errors, omissions, improper conclusions, regulation violation, assessments, projected directions and / or any
recommendations within or beyond their control or knowledge without limitation.
Without limitation, WNS and the report authors and contributors will not be liable for any direct, indirect, consequential, punitive or other damages.
This includes but is not limited to real or perceived obligation or breach of services surrounding intent, action, regulation, statute, or tort. The
content of this report should be taken “as-is” and no additional expressed or implied representation or warranty will apply. Use of this document is
at the readers, and if applicable, their organizations' own risk.
100
North America
WNS North America Inc
420 Lexington Avenue
Suite 2515
New York, NY 10170
Tel: +1 212 599 6960
Fax: +1 212 599 6962
United Kingdom
WNS UK Ltd
The Lodge
Harmondsworth Lane
West Drayton, Middlesex
UB7 0AB
Tel : +44. 208. 754. 8289
Fax : +44. 208. 754. 8570
About This Report
The WNS Industry Thought Leadership Series delves into
key issues facing organizations contemplating or
implementing new operating models through outsourcing. India
This series, developed in conjunction with noted industry
WNS Global Services (P) Ltd
authors and practitioners, investigates the critical
challenges faced in key industry segments. Gate No.4, Godrej & Boyce Complex
Pirojshanagar
Vikhroli West, Mumbai 400 079
Tel : +91. 22. 4095. 2100
Fax : +91. 22. 2518. 8307
INDUSTRY THOUGHT LEADERSHIP SERIES W N S G LO B A L S E R V I C E S
Mortgage Process
Outsourcing (MPO)
A Tool to Ensure Profitability and

Efficiencies in Troubled Times
web: www.wnsgs.com
email: mortgage@wnsgs.com
O C TO B E R 2 0 07
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INDUSTRY THOUGHT LEADERSHIP SERIES W N S G LO B A L S E R V I C E S

A Tool to Ensure Profitability and

An industry under pressure

Three business imperatives drive a change in mortgage operating

Finally, due to an increasingly competitive, fast-changing lending environment, lenders do not

Securing profitability and efficiency in challenging times

Wake up call for the industry

A few years in the making

An opportunity for change

2000 Non Mortgage ABS

1500 CMOs / REMICs

Figure 1 : Securitization vs. Agency / Non-Agency MBS Issuance

In Billions of As recently as five years ago, the

credit scores and credentials

favorable terms. Compounded

Outsourcing takes hold

Cost Savings Differentiation

1970 1980 1990 2000 2010

Scale / Market Acceptance Composite Offerings

Source : WNS, Innovative Relevance

Figure 4 : 40 Years of Outsourcing

As success became obtainable, companies explored further opportunities to outsource. The

Evolution of new models

Figure 6 illustrates the evolution that outsourcing relationships sometimes follow. As

Market Pressures Optimization

Figure 5 : "Waves" of Outsourcing Pressures

Figure 6 : Outsourcing Models and Relationships

Changes in market conditions have created new incentives and opportunities

• Increase in • Knowledge • Mature • Remote • No longer for

Origination Servicing Securitization

Electronic registration Electronic processing

End-to-end mortgage processes

Source: WNS, Innovative Relevance

Figure 7 : Changing Market Conditions

Sources: IDC, TPI Index, WNS

Figure 8 : ITO vs. BPO Growth

The combined ITO and BPO

$1,300 8 markets will exceed $1 trillion

Figure 9 : BPO Mortgage Market Growth

Convergence suggests the time is right for increased adoption

Identifying the opportunities

From simple to complex... process suitability varies

Net Income Per Loan

2001 2002 2003 2004 2005 2006 2007 2008

Sources: Mortgage Bankers Association, Inside Mortgage Finance

Figure 10 : Origination Volume vs. Net Income Per Loan

Loans Closed per Year In Dollars (USD)

125 2500 established over six years ago.

As productivity fell, the

2001 2002 2003 2004 2005 2006

Source: Mortgage Bankers Association

Figure 11 : Loan Officer Productivity vs. Costs to Originate

Average Loan Balances

Figure 12 : Homes Sales vs. Average Loan Balances

Origination Securitization Servicing Management

• Relationship • Loan Application • Underwriting • Variance • New Loan Setup • Default

Source: WNS, Innovative Relevance

Figure 13 : Mortgage Process Value Chain

Potential Return / Cost Savings

Security / Privacy Challenges

Production and Product Sourcing Relationship Management

Customer Data Capture

Purchase Advisory and Mgt.: