How To Select the Best Loan Origination Software

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Your legacy loan origination software is aging. Maybe you can’t even remember when it was first installed. Costs, functionality, company growth, demands of regulatory compliance, and an increasingly competitive market; any one of these is reason enough to consider new software. You and every one of your employees know it’s time to make the move to a modern loan origination system. There’s nothing to be gained by delay.

Whether you are a finco, credit union, or bank, the challenge of selecting the best loan origination software will take time and the coordinated efforts of many. Everyone has opinions and perspectives, based on their lending cycle responsibilities. Those discussions may even become a bit contentious.

We understand the challenge. We’ve been in the lending industry for more than 20 years—as lenders, software developers, and fintech innovators. Lending is our exclusive focus. We share the following guidance to help you select the best loan origination software for your specific business needs. When you evaluate vendor offerings, look for these features and capabilities.

How To Select the Best Loan Origination Software

Ask: Is it cloud-based?


Your loan originations software must be cloud-based. Hundreds of thousands of organizations have already made the move to the cloud. IDC’s Worldwide Semiannual Public Cloud Services Spending Guide predicts $160 billion in 2018 spending on public cloud services and infrastructure.

The cloud offers lenders financial and operational benefits, including:

  • Reduced capital expenses (CAPEX): no need to invest in new hardware and infrastructure to support a new loan origination system;
  • Lower operational expenses (OPEX): cloud service providers like Amazon Web Services (AWS) assume many of these costs;
  • Faster system implementation and customization: quickly tailor the software to meet your unique lending needs;
  • Frequent software updates: take immediate advantage of the latest functional improvements;
  • Scalability: accommodate the need for process, data, or business growth, or seasonal demand changes; and
  • Ease of integration: include complementary lending software data sources and services to enhance the efficiency of your lending practice.

Web Interface Improves Reach and Customer Experience


Loan origination software hosted in the cloud is accessible via the web. In comparison to legacy systems that lack a web interface, the cloud and web expand lending services to any place or device with an internet connection and web browser. This allows you to grow your business, making your services available to a greater number of clients in a greater number of locations.

Consumers complain about the time and complexity of obtaining a credit decision. The web-based interface of modern loan origination systems addresses that problem. Dealers and borrowers alike find the loan application process far easier and faster. As a lender, you’ll have detailed, accurate information to quickly evaluate applicant creditworthiness.  

The cloud helps lenders lower operational costs, take advantage of the latest lending technology, reach a wider market, and stay competitive. The first question to ask when evaluating loan origination software: “Is it cloud-based?”

Ask: Is Integration Easy?


A cloud-based loan origination system makes it easy for you to integrate a wide variety of complementary data sources and services to meet your specific lending needs, including:

  • Application Sources: make your lending services available to dealers nationwide;
  • Credit Bureaus: well-established sources for evaluating applicant creditworthiness;
  • Alternative Credit Data: complement traditional credit bureau data with additional consumer data to verify creditworthiness or extend credit to previously overlooked market segments;
  • Document and Imaging Services: eliminate the cost and delays of mailing or shipping applicant documents, and securely maintain digital records for immediate access;  
  • Vehicle Valuation: quickly and accurately calculate vehicle value when structuring a deal; and
  • Compliance and Risk: comply with State and Federal interest rate regulations and accurately validate loan calculations.

Easy integration with these resources extend the functionality of your loan origination system, open up new market opportunities, and help you make better quality credit decisions faster and more confidently.

Pre-Integration Saves Time and Money


Loan origination software should be pre-integrated with these complementary resources. Pre-integration gives you the ability to quickly configure the resources and services you need, select the data that you need to access, and incorporate automatic calls to those services during underwriting and funding processes. If you add a new partner, custom integration shouldn’t cost extra.  

The wealth of credit data available to lenders also creates a dilemma. Credit data providers can offer you hundreds of attributes to evaluate applicant creditworthiness. Each bureau uses different names for attribute fields and slightly different formats. Look for loan origination software that can automatically “normalize” credit data from various sources and present it in a consistent format for underwriters to review (as part of the scorecard), and for your decision rules to act on.

Cloud enables rapid implementation. Pre-integration with complementary data sources and services enhance the functionality and efficiency of loan origination. The question to ask: How easily does the loan origination software integrate with complementary lending data sources and services?

Ask: Can we configure changes without coders?


Loan origination software needs to conform to your unique lending focus and processes. Custom programming or coding, statements of work defining the customization specifics, and costs associated with these practices run counter to rapid implementation and integration enabled by the cloud.

To meet your unique lending needs, modern loan origination software replaces coding with configuration. Configuration does not require technical or programming experience. Knowledgeable, authorized users using configuration menus can make changes in minutes. Configuration lets you make modifications to nearly every aspect of the loan origination process. Configuration maintains a “who, what, when” record of changes (a handy means of demonstrating compliance, in the event of an audit). Configuration menus let you:

  • Assign user access roles, responsibilities, and privileges;
  • Determine layout and format of individual user interfaces;
  • Create custom data fields and drop-down menus based on user role, type of loan, or phase in the lending cycle;
  • Integrate complementary lending data and services to enhance efficiency, improve decision quality, reduce risk, and comply with federal and state regulations; and
  • Replace manual decisions with automated, consistently executed decision rules that:
    • assign applications to workflow queues based on applicant attributes;
    • automatically verify applicant information and flag exceptions requiring review;
    • determine when exceptions or overrides are acceptable;
    • specify conditional approval criteria;
    • create custom formulas and calculations;
    • enforce compliance checkpoints;
    • ensure notifications such as adverse actions are created and sent; and
    • execute auto-approvals and auto-declines.

A rich configuration environment allows you to create a loan origination process tailored to your specific business practices, and to quickly modify in response to market dynamics. The question to ask: Can I configure the loan origination software to meet my unique lending needs, or will it require coding?

Ask: Does it include analytics?


A modern loan origination system captures and creates volumes of detailed data about applicants, underwriting and funding processes, borrowers, vehicles, and deals. Applying analytics to these data yields insight into every facet of your practice: credit policies, operational efficiency, and portfolio performance. A few examples of analytic insight to evaluate policies and processes, and determine their impact (positive or negative) on your practice include:

  • Credit metrics by origination or bureau;
  • Approval, book-to-look, and capture ratios based on FICO scores, compared week by week, quarter to quarter, or annually;
  • Underwriting turnaround time by time period, dealer, group, or individual underwriter;
  • Collateral evaluation by make, model, mileage, age, term, or LTV; and
  • Portfolio segments by average APR, term, LTV, PTI, DTI, or amount financed.

Analytics shouldn’t require the expertise of a specialist. Your business users should be able to easily specify the data to analyze and run the reports. Analytics allows you to create summary reports, and to drill down to explore nearly any aspect of your lending practice in detail. In addition to using standard reports provided by the vendor, lenders should be able to easily customize reports to explore specific areas of interest.

The benefits of a configurable, cloud-based loan origination system are significantly enhanced with the addition of analytic capabilities. If loan origination software does not include analytics, you won’t realize the full value of your investment. For analytics there are two questions to ask: Is analytics a fully integrated part of the loan origination system? Can business users develop and run reports, or is analytics expertise required?

Ask: Are you focused on the lending industry?


For many software vendors, lending is only a small segment of their overall software portfolio. For others, lending is the sole focus. It’s the difference between a generalist and a specialist, or between a big-box store with part-time employees and a local specialty store where everyone lives and breathes the products and services—a place where you can go a talk shop with experts. A few additional questions to ask regarding the software vendor as you select the best loan origination software to meet your unique business needs:

  • What percentage of their software portfolio is focused on lending?
  • Do employees have significant, hands-on lending experience?
  • Do they provide an online, collaborative environment for clients to post questions, share expertise, and recommend software improvements?  
  • What industry events or conferences do they sponsor or attend?

Do they host an annual user conference?

The Best Loan Origination Software:
Getting Started

defi SOLUTIONS is exclusively focused on lending. We are proud of delivering software solutions “for lenders, by lenders.” We welcome the opportunity to show how cloud-based, configurable, loan origination and analytics software can improve your lending efficiency and profitability. Contact our team today or register for a demo of defi LOS.

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