Bank of America Corp. has opened a unit in India to review home-valuation reports as it seeks to rebuild share in U.S. mortgages at a lower cost, said four people with knowledge of the move.
Workers in the new Bangalore office follow checklists to determine if appraisals are complete, said the people, who requested anonymity because they werent authorized to comment. The firm also eliminated jobs of licensed U.S. workers in its LandSafe business, the appraisal division of the Charlotte-based company, which made $78.7 billion in loans last year, the people said.
One of the biggest problems in the mortgage business is all the paperwork involved, and how do you engineer it to reduce the bottlenecks, said Bert Ely, an independent banking consultant in Alexandria, Virginia. With offshoring, the potential for problems is always there, but its hard to be critical for trying to minimize costs.
Lenders around the world have vowed to boost revenue and curb spending to make up for sluggish loan growth and new regulations. Bank of America, which spent more than $45 billion to settle disputes tied to defective mortgages and foreclosures, is among the most aggressive cost-cutters with Chief Executive Officer Brian Moynihan planning to save $8 billion a year. The firm slipped from being the biggest U.S. mortgage lender in 2008 to fourth last year.
LandSafe has more than 2,000 associates in the U.S., according to the Plano, Texas-based firms website. In addition to appraisals tied to new home loans, it also conducts valuations on Bank of Americas portfolio of delinquent loans, of which the company had 667,000 on March 31. In February, the lender cut about 5 percent of LandSafe employees, saying they werent needed as overdue loans fell.
Licensed reviewers, who check the accuracy of appraisal valuations and can earn more than $100,000 a year, were among those who lost their jobs, the people said.
Bank of Americas program prevents paperwork errors from delaying loan applications, said Terry Francisco, a spokesman for the second-biggest lender by assets. The overseas completeness checks, begun in August, dont replace in-depth reviews done by licensed U.S. staff, he said.
The overall consideration isnt necessarily cost, although cost can be an element, Francisco said. What were looking for is if there are patterns in certain areas where it looks like the reviews arent necessarily needed anymore.
The U.S.-based reviewers, who typically had at least five years of experience as appraisers, are required to confirm accuracy by doing independent assessments that conform to industry standards, the people said. The checklists in India cover 17 items such as whether the appraiser remembered to sign the report and include photographs of rooms, according to a copy obtained by Bloomberg.
Relying more on checklists may increase the odds of defective reports going undetected, said Karen Mann, a Discovery Bay, Calif.-based appraiser who testified for the Financial Crisis Inquiry Commissions 2011 report. The FCIC examined the causes of the housing bubble and subsequent 2008 credit crunch.
Experienced, licensed appraisers know the shortcuts people take, so those reviewers can be invaluable, Mann said. With the checkboxes, theyre looking for things that dont really have anything to do with values.
Bank of America was forced to pay the most of any U.S. lender to put the housing mess behind it after Moynihans processor Ken Lewis bought Countrywide Financial Corp. in 2008. The firm has finished paying the lions share of costs tied to faulty mortgages, Moynihan said in March.
Lenders are under pressure to reduce costs because demand for refinancings, the biggest source of volume for the firms, is falling amid surging mortgage rates.
The average rate for a 30-year fixed loan rose to 4.46 percent from 3.93 percent, the biggest one-week increase since 1987, McLean, Virginia-based Freddie Mac said yesterday in a statement.
Bank of America, which doesnt disclose how many workers are outside the U.S., had 262,812 employees as of March 30, or 5.7 percent fewer than a year earlier.
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