In an environment where consumers expect a near-instantaneous confirmation of transactions, the loan origination process of many lenders comes up short. The reality is that if you’re unable to respond quickly to a loan submission, a competitor will instead likely book the loan.
Banks, credit unions, and fincos who are missing out on loan opportunities because of their inability to shorten the loan origination life cycle can solve this problem with the capabilities now available in modern loan origination systems. Innovations in lending technology have helped shorten almost every step of the loan origination cycle. Three capabilities, in particular, are making a dramatic improvement in improving the efficiency of loan origination—a well-designed UX for desktop and mobile devices, auto-structuring for rapid review and decisioning, and digital documents that eliminate paper from the loan origination life cycle.
Begin With a Well-Designed User Experience
An efficient loan origination process begins with a well-designed user experience. Whether the loan is submitted via desktop or mobile device, the UX should:
- Prompt for borrower information in a logical sequence and conditionally prompt for data based on loan type and data previously entered.
- Use masking, minimum and maximum values, and data verification to help ensure that information is entered correctly, thereby avoiding problems that delay application review and decisioning.
- Capture and submit any required documentation in a digital format.
It’s likely that a lender will have several different UXs for the various lines of credit, all of which will evolve over time. To facilitate rapid prototyping, WYSIWYG development methods make it easy to determine the layouts and styles that reflect your processes and practices. Plus, changes can be easily made to fine-tune the experience.
To ensure that borrowers will have a consistent experience, the development environment should provide the ability to preview and test the UX in a setting that simulates the most popular mobile and desktop browsers and operating systems.
A well-designed UX quickly and accurately captures the required information to facilitate a completely digital loan or lease application.
Auto-Structuring: The Fastest Way to Shorten the Loan Origination Life Cycle
One of the most innovative ways to shorten the loan origination cycle is through auto-structuring. With this method, the loan origination system restructures deals to match credit policies with the goal of achieving conditional approval. The auto-structuring process uses existing credit policies and sets parameters for how specific credit policy fields in an application can be modified.
Configuration menus allow the lender to select the credit policy fields that will be used in the calculations, as well as set rules determining when to apply auto-structuring to the origination process. Multiple rules can be created to trigger auto-structuring, but only one rule needs to be triggered.
The auto-structuring process loops through the selected credit policy fields sequentially, modifying fields. If the deal structure matches a configured credit policy at any point in the process, it stops and moves the application to the ‘approved’ status. If a credit policy field reaches the configured maximum/minimum value for the field, the process then moves to the next field. If the process reaches the iteration limit for all fields, it reverts to the original deal values.
|Auto-Structuring Looping Concepts|
|A credit policy maximum Term is 54 months and the resolution increment for Term is 2 months. For an application received with a 60-month term, auto-structuring will loop 3 times to reduce Term to 54 months.|
If there’s a resolution requirement of $2000 Cash Down and Cash Down was $1000, auto-structuring would need to loop 10 times (increments of $100) to reach $2000.
The results of auto-structuring can also be configured to include any required adverse action reasons to explain why the specific deal was reached when an offer is returned to the applicant.
Underwriters can easily see which credit policy fields have been modified in order to reach resolution and loan approval. In the example above, Cash Down has been incremented by $600 to reach resolution.
Auto-structuring is a powerful method to shorten the loan origination life cycle, greatly reducing decision time and thereby enabling lenders to:
- Increase booked applications and volume.
- Approve deals anytime, anywhere.
- Improve accuracy and consistency of loan decisions.
- Let underwriters focus on the applications that require their expertise and attention.
The auto-structuring process is ideal for loan applications that initially fail to match credit policies. In the best of cases, the entire application review, approval, and offer to the borrower can be completed without the aid of an underwriter.
Digital Documents Save Time and Money
Historically, paperwork involved in the lending process is one of the biggest impediments to a fast and efficient process. Printing, filling out forms, mailing, faxing, and handling on the receiving end (often involving rekeying data) protract the loan origination life cycle. Modern loan origination solutions address this problem in two ways:
#1: They capture all borrower information digitally via desktop and mobile UX to facilitate the fast and accurate entry of borrower details and allow digital images of required documents to be submitted throughout the loan origination life cycle.
#2: They deliver offers digitally with e-contracts with e-signature capabilities to facilitate the convenient review and acceptance of terms and conditions.
Digital document capture allows stipulations (income statements, proof of address, previous loan statements) to be submitted digitally to accelerate final approval and funding.
Don’t Let Outdated Lending Software Limit Your Growth
Loan origination continues to evolve from its original protracted, paper-based process to one where the entire process—from submission to approval to acceptance—can now be accomplished in a matter of minutes. Lenders who are still bogged down by software that cannot support a completely digital loan origination life cycle are limiting their ability to compete in today’s market. Not only will they miss out on lending opportunities, but operational costs will also be greater and profitability will be lower.
Modern lending software is making it easier than ever for lenders to provide a completely digital loan origination life cycle. Cloud platforms, system customization using configuration menus (no programming required), and a growing number of pre-integrated lending information sources and services enable lenders to quickly realize these benefits.
defi SOLUTIONS’ online client portal (defi CONNECT) brings together borrowers and lenders. defi CONNECT integrates with defi’s flexible, scalable, end-to-end platform that includes loan and lease originations and servicing systems designed to shorten the loan origination life cycle. If you’re struggling with the limitations of your current lending technology solutions, contact our team today or register for a demo.