Decision rules are a big reason why modern, cloud-based loan origination solutions are so efficient. Decision rules may be used in nearly every step of the process. They are the foundation for loan origination automation. Unlike legacy lending software, decision rules don’t need in-house programming skills or outside consultants to make loan origination process modifications. Instead, they are created and managed by using configuration menus. Lending professionals can easily implement and modify decision rules that reflect their unique business requirements.
Decision rules provide distinct benefits that not only improve lending efficiency but also the consistency of loan origination processes.
- Eliminate manual, repetitive underwriting decisions, allowing underwriters to focus their time and expertise on high-value decisions that cannot be automated
- Bring consistency to underwriting decisions that may otherwise vary based on the judgment and experience of the underwriter
- Provide a formal record of current and past decision policies in support of compliance regulations
Decision rules can be as simple as a comparison of credit score to a minimum threshold in your credit policies, or as powerful as automating a deal structure by iteratively adjusting terms until they match a credit policy. Here’s a quick look at four examples to illustrate the versatility of decision rules in driving loan origination automation.
How Decision Rules Drive Loan Origination Automation
1) Credit Bureau Waterfall Rules
Modern loan origination systems let lenders access credit bureau data from multiple sources (Equifax, Experian, and TransUnion) using rules to create a waterfall approach. Either natively or using a system such as Digital Matrix Systems (DMS), the rules can determine whether cumulative bureau data is needed instead of a single, standard bureau data.
Here’s an example:
- If a DMS bureau rule triggers, but DMS is not active, default to credit bureau zip preferences.
- If a bureau waterfall rule does not trigger, default to the credit bureau zip preferences.
- If one or more waterfall bureau rules trigger, but the credit bureau is not active, it will default to the credit bureau zip preferences.
Decision rules present a logical and consistent method of tailoring the loan origination process to meet the unique needs and policies of a lender.
2) Post-Bureau Rules for Quick Approvals or Declines
Decision rules may be set to govern declines of applications after bureau reports have been pulled. Post-bureau decline rules provide decision consistency and ensure that if any rule triggers a decline it must be waived in order to approve the application. Decision rules also allow lenders to track and analyze automated decisions. In this example, a lender can easily determine the percentage and types of loans that were declined or approved by overrides.
3) Automate Tradeline Calculations
Define rules that determine which specific tradeline data are included in the calculation of borrower expenses. A tradeline rule can be written using any tradeline data fields. For example,
When no tradeline rules are active, all open tradelines with a balance > $0 and payment > $0 will be included in the calculation.
Lenders have flexibility in determining how they want to evaluate tradeline data. Rules can be created to use actual monthly payment, percent of balance, compare actual against percentage and use the greater of the two amounts, or to specify a fixed amount in the expense calculation. Lenders who use multiple bureaus can easily create rules to accommodate the individual bureau’s data.
4) The Power of Auto Structuring
Auto structuring is one of the most powerful applications of decision rules. With auto structuring, the loan origination system automatically restructures deals to match your credit policies. You can define the rules that determine when auto structuring will run. Multiple rules can be created to trigger it. However, only one rule needs to be triggered to initiate auto structuring.
By iteratively applying the rules that control how a credit policy field can be modified by the system, auto structuring attempts to determine a resolution. Successful resolutions can trigger an immediate or a conditional approval tied to any stipulations you establish. Unsuccessful resolutions automatically issue an auto decline.
Auto structuring lets lenders translate credit policies and underwriting decisions into a predictable, automated process that accelerates decision time, often allowing a lender to respond with a deal in seconds.
Loan Origination Automation Begins With Decision Rules
Decision rules easily created and managed with configuration menus help achieve loan origination automation. From simple binary decisions based on credit scores all the way up to complex calculations that mirror the decisions of experienced underwriters, rules deliver speed, accuracy, and consistency in lending decisions.
defi SOLUTIONS is a leading provider of lending software. We’d welcome the opportunity to demonstrate how decision rules can be used to increase loan origination automation. Take the first step toward greater efficiency and consistency in lending decisions by contacting our team today or registering for a demo of defi LOS.
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