US mortgage crisis may lead to offshoring boom

Raman Roy, perhaps India's best-known BPO entrepreneur, is keenly tracking the US home loan market these days.

His attention has been drawn by recent events in the $500 billion sub-prime loan segment, which accounts for a fifth of all loans in the US home loan market.

Around 20 sub-prime lenders (companies that lend to risky borrowers at higher interest rates) in the United States have closed down, filed for bankruptcy or lost money. Two recent cases "� New Century Financial Corp and Fremont General Corp, both large lenders "� have rattled the market even further.

Although Roy has put a team of executives at his company, Quattro BPO Solutions, on the job of tracking the situation in the United States, he is not unduly worried.

"It is an unfortunate development. But, it creates an opportunity and we are in active discussions with some companies," he said.

The remark sums up the opportunities for Indian BPO services from US's mortgage meltdown. The crisis in the sub-prime market can impact third- party BPOs that serve the huge US mortgage industry in terms of recovery of fees in the short run.

On the other hand, outsourcing companies can expect an exponential increase in the outsourcing business as fresh loan processing norms are tightened in the US.

Pradeep Udhas, global head, sourcing advisory services, KPMG, pegs the global mortgage BPO market at $10-11 billion. It is forecast to double in three years.

The market share for offshore service delivery is estimated at $3-7 billion, with the total value of mortgage BPO delivered from India at $100-150 million. This segment of the Indian offshore market is projected to reach $1.1 billion by 2010.

Avinash Vashistha, chairman and chief executive officer, Tholons Advisory, predicts that the slowdown could last three to six months. "At the moment, small US mortgage firms do not send work to India. That could change," he says.

Rohit Chanana, president, Hero-ITES, part of automotive group Hero, agrees that there will be a greater drive to cut mortgage processing costs in the US. "They will have to do it to optimise their returns. The downside is that if you are a company whose existing client is headed for bankruptcy, you may find it tough to recover your money."

The US's $9.5 trillion mortgage market is the world's largest debt market, according to Tholons Advisory, an investment advisory firm. Falling interest rates and the refinancing boom saw sub-prime lending grow at 25 per cent a year between 1993 and 2004, outpacing growth for prime mortgages.

The boom fuelled the need for offshoring "� both as a measure to save costs and to handle increasing loan volumes.

As a result, Delhi, Mumbai, Hyderabad, Bangalore, and Chennai became home to nearly two dozen captive and third-party offshoring set-ups.