Indian outsourcing firms serving the US mortgage market suffered much in the crisis. Now they have found a comeback opportunity
Sometime in early 2007, Phaneesh Murthy, the CEO of iGate Corp., a US technology outsourcing firm with most of its operations in India, faced a situation that few of his peers would have faced. In a matter of three months, one of his businesses that accounted for more than a tenth of the company revenues crashed to zero.
In what is probably one of the earliest signs of the global financial crisis on Indian soil, the company lost all the revenue it got from its mortgage origination business (the business of scrutinising applications and documents for banks issuing loans), which is based in Bangalore.
iGate’s mortgage process outsourcing (MPO) business wasn’t alone in suffering such a dramatic impact. After all, mortgages were at the centre of the financial crisis. Customers in the US were shutting shop or selling out. Even by early 2007, over 20 US companies dealing in subprime mortgages had to close down. As the problem spread, subprime lending, which accounted for a fifth (or $605 billion) of all new mortgages in 2006, virtually came to a stand still. Since then, over 350 lenders in the US have filed for bankruptcy, halted operations or sold out to bigger firms.
Prashant Kothari, president and founder of String Real Estate Information Services, says, in early 2008 his pessimism was nine on a scale of one to 10. As the year progressed, banks collapsed, and credit froze, his pessimism about the industry had touched 20 — on a scale of 10. “It had broken the scale,” he says.
Now, here’s the surprise. Just two years on, far from collapsing, some of the MPOs seem to be doing a good business again. Today, iGate’s BPO growth is predominantly driven by the mortgages business. For Kothari, the business grew at about 50 percent in 2010. He reckons many of his competitors grew at least by 20 percent to 30 percent during that time. ISGN’s revenues more than doubled last year. (ISGN is a mortgage technology and services company funded by the KK Birla group and New Enterprise Associates.) So what has changed?
For Every Door Closed
Not many new loans were being given and the loan origination business had virtually stopped. Neither had home prices in the US recovered. But the business found a new opportunity: Following up on repayments and defaults, according to Murthy. And MPOs weren’t been slow in taking to it.
“The market undergoing a big disruption is a market that people run away from. But if you look at it, the market undergoing a big disruption is also the market with new opportunities,” says Krishna Srinivasan, CEO of ISGN.
Now, mortgage lenders in the US, encouraged by the American government, are going back to borrowers with loan modification schemes to avoid foreclosures. They are also more cautious in giving out new loans — which have started in a small way. The processes involved can be lengthy and complicated. But it’s easy to train people to do some of these processes, if they have already worked on the other areas of mortgage loans such as verification, says Anil Bajpai, senior vice president and head - iTOPS Delivery, iGATE.
The whole mess around dodgy mortgage-backed securities is another opportunity. Take the case of Bank of America. It recently paid more than $2.5 billion to buy back mortgages from Fannie Mae and Freddie Mac. Fannie and Freddie had bought these loans from Countrywide Financial (which is now a part of BoA). The two US government controlled institutions now claim that the lender misrepresented the quality of the loans.
As claims and counter claims go back and forth, MPOs in India go through the documents, investigate and analyse them, and present a report to the lender. It’s then taken up by the disputing parties and the legal teams. Infosys BPO’s banking and capital markets head, Kapil Jain, says the company won a deal in this area about six months ago.
(This story appears in the 28 January, 2011 issue of Forbes India. To visit our Archives, click here.)