After four long years, the U.S. mortgage market finally witnessed resurgence in 2012. On the back of the U.S. economy strengthening, both new and existing home sales registered increases, driving up home prices to the highest levels in 24 months. This has led to a surge of activity in mortgage banking and the emergence of multiple trends in the mortgage BPO space:
- Mortgage origination services upticking – Historically low interest rates, coupled with higher than average inventory, drove a significant uptick in mortgage originations – per the Mortgage Bankers Association, a 30 percent year-over-year increase in Q1 2013 – and a downtick in refinancing. As the U.S. economy continues to gain traction on growth and the U.S. Federal Reserve eventually starts to taper down its quantitative easing (QE) program, interest rates are likely to firm up, resulting in a higher percentage of originations in overall mortgage transactions.
- Mid-market lenders coming under spotlight – Today, the five biggest U.S. mortgage lenders control just 53.2 percent of market, as compared to nearly 66 percent in 2010, according to reports from Inside Mortgage Finance. This dramatic change is explained in part by the rise of small lenders that were helped along the way by the retrenchment that happened at the largest banks after the financial crisis.
- Technology-bundled BPO solutions to gain traction – As the small lenders look at aggressively growing in the mortgage space, many are realizing their technology capabilities are not top drawer. Thus, they are looking at BPO for not only help with scaling up their operations, but also for access to technological tools that complement their limited technology capabilities.
- Providers taking partnership/acquisition route to quicken go-to-market – The BPO players are seriously evaluating partnerships and acquisitions per their realization of the importance of reducing time-to-market in reaching out to small banks with their technology-enabled BPO offerings. For example, Accenture’s 2011 acquisition of Zenta, a leading provider of mortgage processing services in the U.S., gave it significant capabilities in mortgage servicing. Now, with its recently announced acquisition of Mortgage Cadence, a provider of loan origination software and electronic document management services, Accenture Credit Services can offer a full suite of services for mortgage originations, servicing, and closure. Another example of this trend is Mphasis’ acquisition of Digital Risk, which is a service provider in the U.S. mortgage market.
These surely are interesting times in mortgage BPO, with a multitude of challenges and opportunities impacting the buyer and seller landscapes. To learn more about Everest Group’s views on the mortgage BPO market, make sure to read our upcoming Banking and Financial Services (BFS) Annual Report, being released mid-August.