U.S. banks are outsourcing mortgage and foreclosure work to India to keep costs down and keep up with growing regulatory demands created since the financial crisis of 2008.
The banks are using technology firms on the sub-continent to supplement some of the needed work rather than hire more people in the United States, The Wall Street Journal reports
But regulators worry that there is poor supervision by banks of third-party vendors. And consumer advocates fear that in the long run, it will be harder for banks to be sure that the work is done properly.
"The lack of oversight so far away may be too much for these banks to handle, considering how badly they've handled overseeing their own staff," said Ira Rheingold, executive director of the National Association of Consumer Advocates.
After 2008, the U.S. government demanded changes to every aspect of the mortgage and foreclosure process. Banks are outsourcing to meet the changing rules and demands.
The Indian companies say that their role won't be giving final approval for mortgages or foreclosures.They will help the banks by preparing the necessary documents that the banks will have to sign off on.
"We never judge the cases," said Abid Ali Neemuchwala, vice president of Mumbai-based Tata Consultancy. "What we do is make it easy for the banks to make that final decision by putting together all the information and letting them know their checklist is complete."
According to The Wall Street Journal, this move increased revenues for Indian outsourcing firms to $316 million in mortgage work for this year — double the revenue from similar work in 2009.
While some argue that outsourcing may help banks maintain their bottom line, there is concern that customer service will suffer.
"If their solution is to minimize costs, that's the solution they've found," Rheingold said. "If the solution is better customer service, they have clearly not found it. The solution is not overseas; it's within their own practices."
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