The Best Loan Origination Systems:
Comparison Criteria for 2018-2019

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How old is your current loan origination system (LOS)? If you can’t remember, you’ll be glad you’re reading this. If you haven’t evaluated loan origination systems in more than five years, you’ll find there’ve been significant advances in technology. These advances virtually guarantee improved loan origination efficiency, lower processing costs, and help comply with changing regulations.

Many factors point to the need for a loan origination system comparison. Changes in regulations, increased competition, and technology platforms have made legacy loan origination systems inadequate for today’s auto lending needs. To remain competitive you need a modern loan origination system that benefits both lender and borrower.

What’s the best way of conducting a loan origination system comparison? Which criteria should you use? How do you evaluate and select a loan origination system that specifically meets your needs? The task can seem daunting. Just google “loan origination system” and scroll through pages of results. Solicit the opinions of your colleagues and each will offer a different opinion regarding comparison criteria.

Loan Origination System Comparison Criteria: By Lenders, For Lenders


We understand the significance of a loan origination system comparison. That single, critical decision will affect your lending business for years to come. We also understand how time-consuming the evaluation can be. The guidance we offer regarding loan origination system comparison is based on:

  • More than 20 years’ experience in the auto lending industry;
  • Experience working with partners on complementary lending functionality;
  • Research and investments in new and proven technologies to make auto lending more efficient and cost-effective; and
  • A customer community that continually provides guidance and feedback regarding business needs and software functionality.

We’ve identified four high-level comparison criteria to guide your evaluation process—focus, platform, capabilities, and implementation. We are certain these criteria will guide you in selecting a loan origination system that improves your loan origination efficiency, lowers processing costs, and helps you comply with changing regulations.

Vendor Focus


When you need a major home or car repair, you look for someone with recognized experience. You could take your Toyota to the local garage, but you’ll feel more confident taking it to a shop that specializes in Toyotas. Same for plumbing, electrical, or roofing.

That practice holds for selecting a loan origination software vendor. There are software vendors who offer products for almost every business function, but it’s highly unlikely that each of those products is a market leader. Look for a vendor exclusively focused on the lending industry.

Ask these questions:

  • Is loan origination software your primary focus?
  • What’s the history of your loan origination solution?
  • Do your employees—executives, developers, customer support—have experience in the lending industry?
  • Do you have a user community and a means for users to ask questions and share information? Do you hold an annual user conference?
  • Can you provide credible references for lenders who have similar lending practices?

Software Platform


Here, we’ll get right to the point. Your loan origination system must be cloud-based. “Born in the cloud,” if you will. Hundreds of thousands of companies worldwide recognize the benefits, both financial and organizational, of moving to the cloud. A cloud-based loan origination system gives you these advantages:

  • Quick implementation that brings improved productivity to your employees’ desktops;
  • Lower startup and operational costs. You no longer have the need for on-premise IT costs;
  • Ease of scalability as your business grows, application volumes increase, or you expand to new regions;
  • System availability of 99.99% or better;
  • Frequent software fixes and feature updates. Quickly update your system without using up your IT team’s time; and
  • Integration with other complementary cloud-based products to improve process efficiency, decision quality, and portfolio performance.

LOS Capability & Functionality


So once you’ve vetted vendors and narrowed the field down to those with cloud-based platforms, it’s time to find an LOS with the right mix of capability and functionality for your needs. That means finding right combination of configurability, user interface and experience, decision rules, automation, data and services integration, digital documents, and analytics. Get that balance right, and you’ll process a greater number of loan applications using existing personnel, lower processing costs, make better quality lending decisions, and comply with regulatory requirements.

Configurability


Configurability lets you modify the system easily to meet your specific loan processing requirements. It’s one of the most powerful capabilities to look for in a loan origination system. Unlike legacy systems which require costly and time-consuming programming to make changes, and easily-configured LOS lets business analysts and administrators make those changes themselves. You should be able to make changes to user interfaces, data fields, menus, decision rules, workflows, queues, and reports. That type of flexibility helps achieve greater efficiency in all aspects of the loan origination process. You’ll make the system fit your needs, not the other way around.  

Look for the ability to:

  • Modify the system without the need for technical programming skills.
  • Authorize which configuration changes can be made by individual users.
  • Compare before and after configuration changes before implementing them in a production system. This provides an added level of verification and assurance.
  • Automatically keep a record of configuration changes. This is good change management practice and very useful in the event of a compliance audit.

User Interface, Menus, and Dashboards


Data and process flows for underwriting and verification are unique to each lender. Flexible configuration capabilities let you customize the desktop and format information displayed in menus and dashboards to improve underwriting and funding efficiency.

Look for the ability to:

  • Determine data fields, format, and location on the user dashboard.
  • Select the items to be displayed in drop-down menus based upon user role or access rights.
  • Create custom data fields and formulas that are unique to your lending practice needs.
  • Automatically change the format and layout of the information displayed based on loan type, e.g., auto, marine, recreation vehicle, solar, personal, commercial, etc.

Decision Rules


Decision rules are powerful. They replace inefficient, time-consuming manual decisions, allowing underwriting and funding staff to focus on more complex, higher-value decisions that require lending expertise. Rules are key in automating lending processes. Rules can be used to establish consistent credit policies, determine whether data values such as LTV, term, PTI, or vehicle age are within policy, and automatically alert when they exceed limits.  

Rules also support compliance requirements. Decision rules can be set up to verify applicant attributes or ensure that regulations have been followed (such as interest rate guidelines required by Servicemembers Civil Relief Act). Decision rules can show that lending practices are not discriminatory.

Look for the ability to:

  • Allow business analysts to define, implement, and modify decision rules;
  • Apply decision rules across all areas of your lending process;
  • Auto approve or conditionally approve applications based on defined credit policies;
  • Auto structure a deal that might normally have been declined;
  • Implement fully automated, manual, or mixed lending decisioning processes;
  • Use cascading formulas to facilitate complex decisioning processes; and
  • Automatically maintain a history of decision rules to demonstrate compliance.

Automation


You can’t be competitive without an automated loan origination process. Automation, underpinned by decision rules and workflow, eliminates manual processes, accelerates loan decisioning, reduces processing costs, and allows you to efficiently and accurately process more applications with existing resources.

Automation allows lenders to develop a variety of deal structures based upon the original loan approval. With a variety of offers to choose from dealers have greater flexibility in building custom deals within a lender’s policy and better match a customer’s lending profile.

Look for functionality that provides:

  • Out-of-the-box underwriting and funding workflows that you can easily configure to meet specific processing needs;
  • Auto decline workflows to eliminate unqualified applications and respond with adverse action notifications (and audit trail);
  • Auto-structuring capability with credit policies tied to rules or formulas that return decisions in seconds;
  • Automated calls to credit bureaus and alternative credit data services that return data in a normalized format useful for rules-based, mixed, or manual decisioning; and
  • Ability to track and analyze automated processes with the goal of continual process improvement.

Data and Services Integration


There is a wealth of detailed applicant information available to lenders through credit bureau data, alternative credit data, and valuation services. This information helps lenders make better-quality decisions and comply with ever-changing regulations. However, integration with these services can be a major stumbling block. Variations in data fields and formats returned by the different credit services can be a barrier to effective use of these data.  

Look for data and service integration capabilities that:

  • Are already pre-integrated, allowing you to easily configure data you want to access;
  • Normalize variations in credit data fields and formats to make the information easy to use in decision rules and calculations, and provide a consistent format throughout the loan origination process;   
  • Allow you to aggregate a large number of attributes such as FICO score, income, homeowner/renter, dealership, down payment, collateral, etc. to create a more accurate assessment of applicant creditworthiness;  
  • Give you access to hundreds of credit attributes that can be used to improve loan scoring, particularly in subprime categories; and
  • Provide automatic calls to services to verify applicant information and process applications in accord with regulations such as Regulation Z, Equal Credit Opportunity Act, and usury rules

Digital Documents


Loan Paper loan applications are pretty inefficient. Transforming paper documents into digital documents accelerates the loan origination process and reduces costs. Digital documents eliminate the cost and time of copying and sending documents, lost or incomplete paperwork, and expenses associated with physical document storage. Digital documents can also replace paper correspondence and notifications using automated email and text with attached or linked PDFs.   

Look for digital document capabilities that:

 

  • Manage both application submissions and outbound correspondence;
  • Provide multiple channels digitally communications—scanned image, email, text, and PDF; and
  • Have the ability to securely retain digital documents as business records in support of compliance requirements.

Analytics


Any process-intensive industry can benefit from analytics. When analytics are applied to loan origination processes and borrower-attribute data captured throughout the loan lifecycle lenders gain two distinct benefits.

First, analytics can tell you how well current loan origination processes are performing, yielding answers to questions like: Where are the time-consuming manual process steps that could benefit from automation? Which underwriters make the best decisions regarding subprime applications? What is the average time spent on loan evaluation by individual underwriters? How many applications from a specific dealer exceeded target decision time?

Second, analytics can identify borrower characteristics and loan structures that positively or negatively affect portfolio performance. You’ll be able to answer questions like: Which attributes of subprime borrowers are highly correlated with 90+ days past due delinquencies? What LTV rates help reduce defaults for used vehicles over 5 years old? What was the impact of extending terms to 80 months compared to 72 months? Are there market segments that we could profitable serve if we had more detailed applicant data?

Look for analytic capabilities that:

  • Do not require technical expertise (SQL programmers), but allow business analysts to explore the data and create reports.
  • Allow creation of custom calculations monitor performance metrics.
  • Provide high-level (executive) and detailed (drill-down to an individual loan) analysis.
  • Provide easily consumed analysis via visualization: maps, charts, and graphs.
  • Automatically display report data based upon the user profile, e.g., regional performance for district managers, branch performance for local managers, personal performance for individual underwriters.

Implementation Time


To take advantage of the benefits that a modern loan origination system offers, implementation should not be a protracted, time-consuming, and costly process. Time-to-value for a modern loan origination system should be weeks, not months.

Quick implementation is facilitated by:

  • Cloud-based loan origination system
  • Dedicated team of specialists exclusively devoted to the success of your system implementation
  • Capabilities to quickly configure out-of-the-box functionality to meet the exact needs of your lending practices, policies, and processes

Loan Origination System Comparison: Getting Started

You can’t compete and profit in the current auto lending market with an outdated legacy loan origination system. As you begin your loan origination system comparison, look for a software solution that is quickly-implemented, cloud-based, and configurable. Automation, integration with vital data sources and services, decision rules, digital documents, and analytics improve decision quality, lower processing costs, and help comply with changing regulations. A vendor exclusively focused on the auto lending industry will ensure that every aspect of their solution is designed, implemented, and supported with an intimate understanding of your business needs.

defi SOLUTIONS’ cloud-based loan origination system (LOS) was developed for lenders by lenders who have a deep understanding of the auto lending industry. The defi SOLUTIONS LOS allows lenders to configure the system to fit their lending processes and policies and easily make modifications in response to market demands. We invite you to evaluate our solution by  contacting us to start the comparison, or register for a demo.  

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