How to Cut the Loan Origination Process in Half 

Published on May 4, 2021

The loan origination process is time-consuming and costly for both lenders and borrowers. The booming real estate market, partially pushed by low-interest rates that also generate a demand for refinancing, creates even more reason for lenders to speed up the process while remaining compliant with regulations.

Lenders that can do this efficiently will compete better in today’s fast-paced, tech-dependent climate and please customers while increasing profitability. Learn more about the loan origination process and how innovations are improving it.

Loan Origination Process

The loan origination process as it exists now includes a lot of steps and potential costs to borrowers and lenders. New technology improves this process for both borrowers and lenders alike, with features like artificial intelligence (AI) adding precision, speed, and adaptability. Tech-savvy and next-generation customers expect a smooth process that isn’t burdened with administrative tasks like submitting paper documentation or long waiting times for decisions.

The steps of the loan origination process are as follows:

  • Pre-qualification provides the information needed for lenders to estimate how much a borrower can afford. Traditionally paper-based, this process is moving to online or a hybrid approach. Pre-qualification includes providing identification, employment and income information, credit score, bank statements, tax returns, and investment information.
  • The application process, also traditionally paper-based, is moving online for several lenders. Applications done through a website or mobile application streamline the process, which entails vetting the applicant’s finances. The application provides details of the loan’s costs.
  • Application processing ensures the application is complete and accurate. This step is becoming more automated. A loan origination system (LOS) helps lenders by automating workflows that analyze applicants’ creditworthiness. Lenders and borrowers can both save time when missing or incorrect information is flagged and easy to correct.
  • Underwriting, the review of complete applications, considers factors like credit score, risk scores, and other proprietary criteria that can be unique to the business or industry. Underwriting is often automated by a LOS, which uses a rule engine customized for various lending products. Lenders may approve, deny, or send the application back for additional information.

After underwriting, applications may be approved, declined, or sent back for more information. Rule engines can make adjustments to the loan amount or the interest rate, depending on the application. Loans that otherwise could have been declined or not considered by a lender could be approved under different terms, benefiting both lenders and borrowers.

Final checks before a loan goes to funding are key due to the highly regulated nature of finance. Quality control team members analyze the loans against rules and regulations that are internal and external. This process also can be streamlined using high-tech tools.

Don’t Get Stuck in the Past

Audits of the current loan origination process see where improvements are possible in the procedures and technology. This examination provides a comprehensive overview of how loan officers and loan originators do their work. Audits list any vendors used, the systems involved, and how long the process takes.

Consider several factors when looking into an audit:

  • The methods being used for loan applications (paper, online, or hybrid).
  • The steps in the origination process that are working well.
  • The steps in the origination process that aren’t working well for reasons like slowness or inefficiency.
  • Opinions of the borrowers on the loan origination process.
  • Opinions of the employees on the loan origination process.

Auditing the process end-to-end allows lenders to spot issues with the process or the technology used to conduct those steps and improve both. Traditionally manual steps that have been part of a process for years may now be antiquated and slow the process for employees and borrowers.

Consolidate Workflows

Audits will reveal inefficiencies in processes and technologies. There may be holes in the process, overlapping, or inefficient execution of the steps.

Consolidating workflows is one way to improve the process, speed up the loan origination process, and save money while ensuring that rules and regulations are followed. Explore consolidating steps to reduce manual work and the number of times employees or vendors need to review or intervene in the process.

Look into products and services that can save time and money while ensuring compliance with industry standards. Key steps can be automated, allowing employees to focus on analysis instead of repetitive manual tasks. Applicants and lenders can be notified of incorrect or missing information, allowing them to quickly correct issues and keep the loan origination process moving.

Benefits of Loan Origination Software

Loan origination software can simplify the loan life cycle from application to decision making and issuance. It automates the steps for lenders and also benefits the borrowers by streamlining the application process. Loan origination software is often part of a suite of full-service loan management software that includes loan servicing. 

Loan origination software automates credit scoring and decision making. It reduces risk while giving consumers more access to their applications through a self-service portal. Loan origination software also manages loan-related documents and allows lenders to get a big-picture view of the number and type of loans offered to applicants.

Loan origination software has a number of benefits:

  • Automated rating and underwriting processes.
  • Insightful information and control of the origination process.
  • Transparency to customers through client portals and self-service.
  • Improved loan management.

In addition to automating the loan life cycle, loan origination software allows loan products to be centrally managed by lenders. This management reduces the risk of regulatory compliance issues. Lenders have increased visibility into transactions and real-time monitoring.

Loan origination software features automate the loan life cycle and are often delivered via the cloud, adding another layer of security and protection from system downtime.

Loan origination software has many requirements, including:

  • Adapting to changes in policies, scoring, and other regulatory requirements.
  • Storing and monitoring borrower documents and data in a single platform.
  • Working across multiple online systems.
  • Having loan servicing functions or being able to integrate with loan servicing software.
  • Integrating with business process management (BPM) tools.

Lenders can stand out from the competition by embracing and adopting emerging technologies, including those powered by artificial intelligence. Conducting an audit of the loan origination process from beginning to end is an excellent way to spot holes in the process or inefficiencies. Audits can help lenders consolidate steps and incorporate new technologies. Homebuyers are often younger and tech-savvy, expecting processes to be done online through an intuitive portal. In addition to helping borrowers, lenders can benefit from automated processes that improve compliance, offer visibility into transactions, and are cost-effective.

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