US mortgage lenders will achieve only moderate cost savings if they decide to move some of their operations to cheaper locations offshore, a new industry study has revealed.
According to the Massachusetts-based consultancy firm TowerGroup, offshoring and offshore outsourcing in India and other countries will help the US mortgage lending industry lower total origination costs per loan an average 6% by 2008 – and will ultimately reduce total direct loan origination and loan servicing costs by 2% to 4% by 2010.
“The hype regarding 25-50% offshore cost savings may be true for individual subprocesses,” Craig Focardi, senior analyst in the Consumer Lending & Bank Cards practice at TowerGroup noted.
He added: "Offshoring in India or in any other developing region of the world is a strategic business decision, not a tactical operating cost decision, because it requires large, long-term capital and management resources.”
"Before jumping in headlong, institutions should consider the full spectrum of cost-reduction strategies available to them,” cautioned Focardi.
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