The Loan Origination Workflow Checklist
In a highly competitive auto lending market, lenders have to focus on process efficiency to stay profitable. If you’re using legacy lending software, you’re at a disadvantage. Modern, configurable, cloud-based lending software uses the latest fintech advancements. The result is better-managed loan origination workflows, combined with analytics that help assess and process efficiency and decision quality—all of which makes your business more profitable. These capabilities give lenders a significant competitive advantage in capturing loans.
A Checklist for Loan Origination Workflow Capability
From submission of a loan application to funding, fintech delivers greater efficiency at every step of the process. Here’s a typical loan origination workflow. Use the checklist below this graphic to evaluate the efficiency of your current loan origination workflow, and to see where you might benefit from an update.
Capture Loan Applications Anywhere
You want to make sure you can capture applications from anywhere—directly from dealers in your network, via dealer management software, and mobile devices. Loan origination software needs to support applications from all of these sources.
- Directly from dealers in your network
Buyers still want to touch, test-drive, and kick tires before they buy. Showroom sales will continue to be the leading source of loan applications. Customers often complain about the amount of time spent at the dealer. You can improve the customer experience, reducing the time required to submit an application with loan origination software that:
- Is web-based, immediately accessible via any browser, and therefore in any dealer showroom.
- Can digitally capture and transmit documents such as driver’s license, passport, birth certificate, photo ID, social security card, utility bill, or pay stub. This eliminates delays and costs of sending documents to the lender by mail.
- Integrates with e-signature software to facilitate contract signing.
- Integrated with dealer management systems
Hundreds of dealers use software such as Dealertrack, CoreLane, and RouteOne. Loan origination software should natively integrate (no protracted and costly custom coding or integration projects) with these applications. Applicant information captured via these software products is then automatically transferred to your loan origination system for rapid processing.
- Mobile devices encourage application any time, any place
Millennials and millions of others have become accustomed to conducting business via mobile devices. They enable commerce and communications from nearly anywhere. As the first step in any loan origination workflow, you want to enable a prospective borrower to easily submit an application via mobile devices. Key capabilities to make the process as inviting and effortless as possible include:
- WYSIWYG method that allows you to tailor the UX to your application process, including fields and text displayed, buttons, images, and color palettes.
- Masking, data validation, and minimum/maximum values to accurately capture applicant information.
- Ability to preview UX on simulated mobile device environments and desktop web browsers to ensure proper process flow.
- Ability to capture and upload proof of identification such as driver’s license, passport, birth certificate, photo ID, or social security card.
Mobile capability opens up new opportunities for direct lending, allowing interested buyers to easily submit applications at home, at work, at the dealer, or virtually anywhere.
With loan origination software covering all three of these application sources, you maximize your ability to capture lending opportunities.
Data and Analytics for Qualifying Borrowers Quickly
It’s easy to make a loan decision for applicants with favorable credit scores; a simple bureau call may be all you need to verify creditworthiness. However, very poor, fair, and good scores require more diligence when evaluating the applicant according to the lender’s credit policies. New sources of consumer data now provide lenders with additional attributes to use into scorecards for determining deal structures. Analytic services can identify potential fraud in the earliest stage of loan origination workflow.
- Use alternative credit data for better decisions
An increasingly-digitized economy makes available ever-growing volumes of alternative credit data (ACD) that give lenders an accurate, current, and detailed picture of an applicant’s financial strength. Alternative credit data has the benefit of showing recent trends in consumer financial behavior, as compared to a score that indicates a dated snapshot in time. Alternative credit data that provides insight into consumer financial strength can include:
- Utility, cable, or mobile phone payment records
- Employment history and income data
- Rental history and payment records
- Real estate ownership
- Records of bankruptcies, liens, or judgments
The use of alternative credit data can improve decision quality and potentially open new lending opportunities. It can open opportunities to service applicants with “thin” credit profiles. With millions of U.S. consumers having “thin” credit profiles it’s difficult to evaluate an applicant’s financial strength. However, records of stable employment, consistent income, and reliable payment histories give lenders greater confidence in lending decisions.
Most lenders (prime or subprime, and especially subprime) look at credit scores, alternative data, and collateral to create scorecards to ascertain whether or not they’ll make a deal. An applicant could, for example, have a FICO in the 700s, but have a recent income-to-debt ratio that is becoming problematic. In that case, a lender might not lend the applicant enough for a pricey car known for high maintenance costs, but would a make a deal for a GM. Every lender balances risk and collateral while looking for deals that fall within their unique credit policies—and requiring proof, via stipulations—when unsure. Alternative credit data gives you the information needed to offer a deal fitting your credit policies.
- Identify fraud at the outset
Thanks to anti-theft technology available in cars, auto theft continues to decline. Unfortunately, thieves now acquire automobiles fraudulently. Using “synthetic identity” that can include false income statements and prepaid phone services to verify employment thieves apply for loans then default within the first 12 payments.
Just as technology has greatly reduced auto theft, it is now used to identify fraud. Modern loan origination software integrated with powerful real-time fraud analytics can:
- Recognize nuanced application misrepresentations as a reliable predictor of first or early payment default.
- Provide a risk score (1 to 999, low to high) for 99.8% of the applications you receive.
- Continually optimize the fraud model (based on machine learning) for your lending practice.
- Track the performance of dealers to uncover previously unrecognized sources of fraud.
Fintech capabilities give lenders the ability to identify fraud at the outset by employing the latest analytic capabilities. Identifying potential fraud at the beginning of the loan origination workflow is clearly the most effective means to eliminate the unwelcome burden of defaults.
- Standardize/normalize bureau data for easier decisioning
Most lenders use at least one of the three major bureaus, and each bureau provides consumer data in a different sequence and format. Fortunately, the various formats of attributes provided by bureaus can be transformed into a consistent format. Regardless of source, the information can be standardized and displayed in a consistent format in scorecards or used for automated decisioning. The ability to access complete files from any or all three bureaus and deliver that information in a consistent format supports easier, more accurate decisioning.
The best loan management systems will let you access multiple credit bureaus—not just through the dealer management system (DMS) that aggregates and standardizes the data. You should also be able to access complete files at the bureaus.
Optimize Underwriting with Decision Rules and Automation
In a loan origination workflow, the underwriting step may be the greatest beneficiary of recent fintech advances. Decision rules and automation eliminate error-prone, time-consuming manual tasks, and enable consistent, efficient, and compliant underwriting processes. A modern loan origination system applies decision rules and automation to:
- Evaluate application information and automatically assign to the appropriate work queue and prioritize order within the queue;
- Create custom formulas to evaluate applicant information, display the results in the scorecard, and determine the next step in the underwriting workflow;
- Identify and auto-approve applicants with exceptional credit scores in seconds.
- Auto-structure deals. Auto-structuring can also restructure deals with failed credit policies, and offer dealers multiple deal structures to increase capture rates from 10% to 25%;
- Determine required stipulations that need to be met prior to funding;
- Capture explanatory notes at any step of the underwriting process to facilitate faster or better-informed decisioning;
- Ensure that underwriting process and decisioning complies with federal lending regulations such as Regulation Z, Servicemembers Civil Relief Act, and state usury laws; and
- Automatically create adverse actions with applicant-specific information and reasons for decline.
By replacing manual processes that vary with automated processes driven by decision rules, lenders can respond to applications faster, increasing their chance of bookings.
An efficient underwriting process sets the stage for orderly funding. Here too, decision rules and automation drive the workflow, with information captured from the application and created during the underwriting process.
- Verify all stipulations have been met, such as required documents received and reviewed, confirmation calls made, or emails received. Automatically initiate workflow for resolution of any exceptions.
- Ensure loan terms and rate comply with federal and state lending regulations.
- Create the e-contract, including required regulatory documentation, and electronically transmit to the customer for review and e-signature.
- Upon return of signed e-contract initiate funding to dealer or borrower.
- Digitally capture and retain all documentation and communications associated with funding.
- Electronically transfer all relevant loan information to the servicing system.
Efficiency in the funding process benefits both lender and borrower—faster funding, lower processing costs for the lender, and greater borrower satisfaction, thanks to an all-digital process.
How Does Your Loan Origination Workflow Compare?
If reading through this checklist has helped you identify areas where your current loan origination workflow is lacking, we’ve achieved our goal of helping you achieve greater lending efficiency. In addition to the fintech capabilities highlighted in this checklist, modern loan origination solutions also include analytics that let lenders continually evaluate lending process efficiency and portfolio performance. Each of these fintech capabilities is essential in maintaining a competitive and profitable auto lending practice, and a modern loan origination workflow combines them all.
defi SOLUTIONS’ loan origination and analytics software experts welcome the opportunity to discuss how we can help improve you lending processes and profitability. We are professional lending process problem solvers. Take the first step toward greater efficiency by contacting our team today or registering for a demo of defi LOS.