• First Magnus Financial Corp, one of WNS' key mortgage clients, has filed for bankruptcy and has decided to discontinue offshoring. In light of this, WNS has revised its fiscal 2008 net income guidance.
• GreenPoint Mortgage, a mortgage arm of Capital One and a key client of Infosys BPO declared bankruptcy. Infosys BPO has over 100 people working for the client and expects minimal impact from the loss.
• GreenPoint Mortgage is also a client of iGate Global Solution. The company's share of mortgage processing to its total revenue dropped to about 7% from 10% over the past two quarters. The loss of the client might further impact iGate's revenues.

Not long back, BPO vendors, especially the larger players such as Genpact, OfficeTiger and WNS, were aggressively moving to acquire business from the "hot" mortgages sector, and went on an acquisition spree. However with the current crisis in the US sub prime lending market, companies are highly concerned.

Indian Mortgage Processing space

Banking and Financial Services forms a large chunk of the BPO market. Mortgage process is a part of BFS segment, but still substantial for many companies. EXLService and WNS registered 8% and 9% revenues from the mortgage segment respectively.

Some of the key third party service providers include Equinox, WNS, EXL, Wipro BPO and Infosys BPO. Captives in the space include Bank of America, ABN Amro, Citi Group, HSBC, Countrywide Financial and Ocwen. The services offered by mortgage vendors range from loan origination to various elements of loan servicing.

• In the midst of the sub prime turmoil, Quatrro BPO Solutions acquired US-based Preferred Financial Group, Inc.'s mortgage loan processing operations and technology platform. Preferred Financial Group, Inc. offers services in origination, underwriting and funds mortgage products.
• Further while there are instances of loss of work, a leading provider of settlement services to the mortgage lending industry included additional services (appraisal (valuation), vendor management and post closing work) to the three-year agreement with US Technology's mortgage BPO division.

 The real worry for companies is that the problem is no longer about sub-prime, or the mortgage industry. The contagion is now spreading to all financial markets and other segments of the financial services industry. Ultimately, the problem is that nobody knows who is holding poor quality paper, and investors are reluctant to buy anything right now. There is no doubt that this will be a severe shock to the global financial sector.

While in the long run, a cleaning of the system after the excesses of recent years, is welcome - in the short run, this means a lot of pain for financial institutions that find them on the wrong-end of the sub-prime problem. Further, volumes in many segments (and definitely in mortgages) will be affected. All this will hurt Indian BPOs and IT companies in the short run.

Indian vendors with lower exposure to the financial services industry will be best positioned to ride out the storm. Further in the long run, the crisis might, in turn, result in a spate of mergers and acquisitions with large vendors finding buyout targets in the US. Going forward, we believe that offshoring will continue though it may encounter a near-term hiccup. The service focus is likely to become more diverse, and companies will also diversify their target markets more aggressively, moving from the US to Europe, Asia and Latin America.

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