The importance of a 360-degree customer view.

Author:Ford, Janet
Position:Executive Essay

Current trends impacting the mortgage industry-show lenders are being bombarded from all angles with increased risk: stagnant unemployment, mounting delinquency and foreclosure, diminishing profit margins. Getting out from under this looming pressure requires lenders to actively take a more comprehensive, 360-degree view of their borrowers--and to leverage trusted third parties to help provide that transparency, profitably.

The Department of Labor has reported unemployment at well over 9 percent for the past 10 months--and a broader "underemployment" picture currently standing at 16.9 percent--with 42.8 percent of those unemployed being out of work for 27 weeks or more. The significant and stagnant number of people suffering from lost income poses a challenge for borrowers trying to make mortgage payments and exposes unforeseen risk as those numbers evolve.

As well, managing increasing delinquencies and foreclosures is becoming a growing risk and resource drain for lenders. According to Jacksonville, Florida-based Lender Processing Services Inc.'s (LPS') February (ital) Mortgage Monitor (end) report, home loan delinquency rates now surpass 10 percent--then if you factor homes already in foreclosure, it brings the rate of non-current mortgages to 13.5 percent (versus 7 percent just two years ago, according to LPS data).

If that weren't enough, lenders' profit margins are severely under pressure due to a decline in originations and tighter approval standards. According to the Mortgage Bankers Association's (MBA's) Quarterly Mortgage Bankers Performance Report, average profits are down to $890 per loan from $1,358 only six months earlier (comparing second-quarter to fourth-quarter 2009), due to a combination of lower production volume and greater loan production expense. With such operating pressures, lenders need to maximize every resource they have today.

When lenders have to build and train a team to verify borrower employment and income, it becomes a fixed cost for them. In this turbulent environment, fixed costs can spell financial ruin for already embattled lenders.

Outsourcing income verification transfers that fixed cost to a variable cost and results in a lender only paying for the work that gets done as volumes shift and change. Rather than staffing up and then having to deal with employee attrition when volumes decrease, outsourcing enables lenders to be scalable to easily address fluctuating loan volumes.

To mitigate further loan...

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