Globalization: The Great Jobs Shift

Half a dozen years ago, when U.S. tech companies were scrambling to defuse Y2K concerns, software executives looked overseas for well-trained and affordable engineers to help examine and rework millions of lines of coding.

The Y2K crisis proved to be a fizzle. But since the foray of tech companies overseas, other U.S. companies, including mortgage lenders and title companies, have flocked to places such as Bangalore, India, to staff portions of their operations for much less than they’d spend in the United States.

For real estate, that most local of industries, the impact of this movement, known as offshoring, is being felt largely in mortgage lending, with its high volume of easily replicated loan setup and servicing functions. But the next target may be the increasingly automated transaction management process that’s largely the domain of real estate brokers, independent contractors, and title companies.

“If it can be done over the Internet and using scanned documents, then the job can be offshored,” says Susan Thrasher, senior vice president of residential services at Global Realty Outsourcing (GRO) in Stamford, Conn.

Cheap, educated labor force

The offshoring of mortgage lending and servicing, both residential and commercial, is well underway. With the trend just a few years old, mortgage industry groups have yet to maintain statistics on the amount of work lenders are sending overseas, but anecdotally, the practice is booming.

According to news reports in American Banker and Mortgage Banking, offshoring is attracting a who’s who of mortgage lenders, including Ocwen Financial Corp., Fiserv Mortgage Servicing Systems, HSBC Holdings, Countrywide Financial Corp., and Greenpoint Mortgage Funding.

The growth of GRO, the Connecticut outsourcing company, is also a case in point. Since the launch in 2000 of its commercial real estate operations, GRO has attracted some 80 commercial real estate clients, both mortgage lenders and real estate brokers, which use the company as a conduit to outsource loan due diligence and processing to India. The company has attracted another five lenders on the residential side of its business, which it launched last year.

More broadly, financial services companies, including banks, are expected to offshore half a million jobs, or about 8 percent of their workforce, over the next five years, according to A.T. Kearney, a global business strategist.

Lenders can hire eight or nine times as many employees in India as they can in the United States for the same amount of money, and in many cases that staff comes with more education than in the United States. “The persons hired to do residential loan setup and servicing in India are almost always college graduates,” says Thrasher. “In the United States, it’s rare that a graduate would do this work. And given the limited availability of jobs there, Indians find this work highly rewarding, and you see that that attitude reflected in their attention to detail.”

Quick work turnaround is another factor, thanks in part to the luck of geography. While the U.S. sleeps, the workday in India is in full swing. (New Dehli is 10.5 time zones from New York.) So, for lenders, sending work to India is like getting a second shift in a 24-hour day. “When you’re dealing with millions of dollars in a commercial transaction, having analysts who can turn around due diligence on a loan by the next morning gives you a big competitive advantage,” says Thrasher.

Whether this trend is good or bad for real estate depends on how lenders use those cost savings and increased efficiencies.

“If the savings are passed on to the borrower in the form of lower fees and quicker and more accurate turnaround, all well and good,” says Scott Griffith, e-PRO®, GRI, 2004 vice chair of the NAR Economic Issues and Residential Real Estate Business Trends, and broker-owner of Griffith Realty in Brighton, Mich. “But if the lender is just using offshoring to increase profit without passing on any savings to the borrower, that would be another matter.”

Griffith says he isn’t aware of any lenders in his market offshoring back-office work. If some are, they don’t appear to be sharing any cost savings with borrowers. “I can’t say that I’m seeing anything like that in my market,” he says.

Customer interaction stays local

Offshoring has yet to touch the growing field of automated real estate transaction management, and it may never do so because of the high amount of client contact transaction coordination involves.

“There’s no technological reason or anything specific to the transaction process that would limit your ability to conduct transaction management overseas,” says James Dufficy, vice president and regulatory counsel with First American Corp., a financial holding company in Santa Ana, Calif. “But it would be a hard sell to convince real estate brokers and settlement service vendors they’d get their service at the right time and in the right way if it were being coordinated offshore.”

Travis Wright, president and CEO of Stewart Realty Solutions in Houston, agrees. “It’s an intriguing question whether transaction management could be offshored, but I don’t see the discussion coming up anytime soon,” he says. “You’re talking about something very local. Real estate professionals probably want to stay close to that file.”

First American does offshore some of its title operations, mainly data entry and other functions that go into building its property databases, says Dufficy, but it doesn’t expect to offshore functions that involve interfacing with customers, such as transaction management.

Independent transaction coordinators take a similar view that functions involving heavy client contact won’t lend themselves well to offshoring.

“Working with real estate brokers requires more of a partnership than just processing information,” says Angela A. Parker, past president of the International Virtual Assistants Association. “It’s more involved than the typical functions that are being offshored in other arenas.”

IVAA’s members are mostly home-based clerks or marketers whose clients include real estate brokers outsourcing transaction management and other operations. IVAA awards certification for real estate support specialists.

The slow growth in jobs even as the U.S. economy continues its recovery could make companies rethink offshoring, too, at least as long as the issue attracts the political spotlight. Presumptive Democratic presidential nominee John Kerry, D-Mass., has called for companies to provide advance notice of offshoring, and no fewer than 26 bills related to offshoring have been introduced in Congress. Bills to curb offshoring have been introduced in 29 states, too.

It’s hard to know whether these efforts will cool businesses’ push overseas, but lenders appear to be in the foreign labor market for the long term. “Everyone is rushing over there,” says Thrasher. “As more lenders do it, other lenders feel they must follow suit to stay competitive.”