7 QUESTIONS TO ASK ABOUT LOAN ORIGINATION SOFTWARE

Modern loan origination software (LOS) is the key to flexible and successful lending. To attain the most profitability from their portfolios, lenders need an LOS that they can manage through no-code configuration and win the deals that best fit their lending portfolio.

Numerous lending software options are available, and lenders should choose the one that best suits their needs. Before signing a contract with a vendor, lenders looking to upgrade their current LOS should ask seven important questions:

7 Loan Origination Software Questions To Ask
1 – Which Features Are Automated?
2 – Is the Software Configurable?
3 – Is the Solution Scalable?
4 – How Does the Software Handle Exceptions?
5 – How Long Will It Take to See a Return on Investment?
6 – Is the Software Secure and Compliant?
7 – What Reporting and Analytics Capabilities Does the Software Offer?

Why You Should Use Modern Loan Origination Software

When originating loans, some lenders still depend primarily on legacy processes, systems that are manual or semi-automated. While these methods have been relied upon in the past, they can’t compete with the cutting-edge digital lending technology currently on the market.

Legacy loan origination often involves manual processing of paper forms, which can result in compliance issues, mistakes, and inefficiencies. A significant portion of mistakes can be made in the loan origination process, human error can compromise data consistency, and lack of decisioning speed can impact a lender’s ability to win a substantial number of deals compared to more technologically advanced lenders.

Modern loan origination software reduces many challenges by making systems more efficient, cost-effective, and reliable. It automates many of these processes, cutting down the time spent by staff on originations, and helps lenders customize through no-code configuration and implement their unique business models in order to process applications and conduct other tasks more consistently. 

If a boost in loan origination automation is something you’re considering, here are several questions to bear in mind.

7 Loan Origination Software Questions To Ask

1 – Which Features Are Automated?

Automating loan origination systems helps lenders track the entire origination process. When tasks like information gathering, rules-based decision-making, and risk calculations are automated, it reduces the time staff must spend and makes decisions more consistent. As a bonus, customers will appreciate receiving decisions on their loan application almost immediately after submission.

Ideally, loan origination software should include automated:

• Applicant information gathering
• Stipulation collection
• Decision rules, including exceptions
• Predictive models
• Scorecards
• Workflow assignments and monitoring
• Collateral management

Some LOS systems include additional automated features. When speaking with a vendor, it’s essential to ask for a comprehensive list of all the processes and features that can be automated.

2 – Is the Software Configurable?

It’s essential that lending software evolve with a lender’s business strategy. A modern loan origination software system should address lenders’ specific workflow needs, offering customization through no-code configuration and wizards that lead admins step-by-step through rules, calculations, and integrations. Independent workflows should offer baseline rule sets that allow lending professionals to configure and customize to fit their immediate and future business needs without requiring specialized programming skills to make modifications. In today’s competitive lending climate, it’s important to be able to easily configure the system and add new rules or exceptions long after initial software implementation.

3 – Is the Solution Scalable?

Scalability ensures that the solution can adapt and grow alongside the organization, accommodating increased loan demand without sacrificing performance or efficiency. Scalable software on a scalable platform allows for seamless integration of new users, features, and functionalities without significant disruptions or costly system overhauls as loan portfolios expand or new products are introduced. This flexibility enhances operational efficiency and customer satisfaction by enabling faster response times and smoother loan processing. In addition, scalability protects the organization from unexpected growth and changes in market conditions, ensuring that the software remains a valuable asset in the future.

4 – How Does the Software Handle Exceptions?

While this technically falls under software configurability, the need to handle exceptions should be considered independently. Lenders want to approve applications from borrowers, but it’s not always obvious which is worth the risk. A modern system can automatically approve and decline those that are obvious and “smart queue” and establish paths for those that aren’t.

For example, some borrowers may have very little credit history or a spotty traditional credit record, and additional information is required to determine whether they pose too much risk. Rather than reject applicants and lose out on potentially good clients, using rules and workflows, the system could choose to pull additional information like alternative credit data and send the applications through the automated process once again to assess the applicants based on the additional criteria. Or, it could queue the applications to an underwriter or team of underwriters with expertise in this type of applicant. Software that handles these exceptions well will provide lenders with more loan opportunities while helping to retain loyal customers.

5 – How Long Will It Take to See a Return on Investment?

It’s never easy to determine the return on investment a new LOS will bring. Yet lenders should still ask the lending software vendor approximately how long implementation of the software will take. Knowing this will allow lenders to estimate how long it will take for a return on investment based on their operational needs and will inevitably raise some associated questions. 

For example, is the software functional out of the box, or does it require custom programming based on lenders’ workflows? Do lenders have the option to test a basic software version before upgrading to a more advanced version? Generally, the faster lenders can deploy a new LOS and smoothly integrate it into their lending process, the sooner a return on investment will be achieved.

6 – Is the Software Secure and Compliant?

Whenever new loan origination software is introduced into an existing system, a lender must ensure it’s as secure as possible to protect the lender’s customers and business. This means choosing lending software that:

• Requires multi-factor authentication.
• Stores data securely and includes encryption where necessary.
• Locks down sensitive data, only allowing authorized users to access it.

The lender’s vendor should take security and compliance seriously, including committing to updating software as regulations evolve.

7 – What Reporting and Analytics Capabilities Does the Software Offer?

The ability of the LOS to generate various reports and analytics to track loan performance, monitor key metrics, and identify trends should be considered when evaluating its capabilities. A robust reporting system allows lenders to track key metrics, track loan performance, identify trends, and pinpoint areas for improvement. 

Using comprehensive analytics, lenders can better understand borrower behavior, credit risk, and overall portfolio health, allowing them to mitigate risks, streamline processes, and increase profitability. Reporting and analytics capabilities of loan origination software enable organizations to harness the power of data to drive strategic initiatives, improve operational efficiency, and achieve better results.

Consider Investing in End-to-End Software

End-to-end software makes the loan origination process more efficient and consistent. The same system handles every aspect of loan origination, from digital application processing to automated funding. This ensures the lending process flows smoothly from one step to the next and reduces the risk of information silos and workflow interruptions.

An end-to-end provider with a satisfactory answer to all these questions can help a lender create a more efficient origination system that meets their short- and long-term needs. With advanced, automated software that allows no-code configuration, a lender’s loan origination process will be far more efficient and consistent.