Compared with national banks, community banks have the advantage of a main-street understanding of the unique economic climate of the cities and towns they serve. That gives them an enviable ability to match lending strategies to local needs like regional economic booms or contractions. Throughout these cycles, banks need to monitor and adjust policies in response to these changes—and risk management is an essential part of determining the right strategy.
Improvements Without Major Upheaval
Advancements in the way that IT services are deployed and managed, combined with innovative data and analytic capabilities, are giving banks greater control in managing risk. Community banks can take advantage of these capabilities without the major upheaval and expense associated with previous software implementations. Cloud-based loan origination solutions bring greater efficiency to lending processes. The cloud also lets lenders incorporate a wide range of lending services to help identify risk and to quickly adjust credit policies and processes in response.
Cloud-Based Loan Origination Improves Efficiency
Cloud-based loan origination solutions (LOS) can be implemented without the need for extensive upgrades of on-premises IT resources or protracted programming and development. Hosted in cloud environments and customized via configuration menus that cover all phases of the loan origination process, these solutions enable community banks to manage lending processes far more efficiently. Automation, decision rules, easily-integrated lending services, and analytics all support well-informed decisions that help reduce community bank lending risk.
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Cloud-Based Lending Services Mitigate Risk
A growing number of lending services that easily integrate with cloud-based LOS boost a community bank’s ability to manage risk. Fraud analysis, automated verifications, and trended credit data capabilities allow lenders to identify and eliminate potential risk and gain a more detailed and accurate understanding of an applicant’s financial standing.
| Capability | Technique | Benefits |
| Fraud Analysis | Applies machine learning techniques to loan applications to identify potentially fraudulent information—including straw borrowers, identity theft, inflated income, and false employment—that strongly correlates with risk. | Decline high-risk loans before they ever have the chance to affect portfolio performance. Achieve results that would otherwise be impossible via manual underwriter investigations of loan applications. |
| Verifications | Automatically confirm or refute stated income and/or employment information in the event there’s doubt regarding accuracy. | Catch one of the most common means of loan application fraud and eliminate the risk. Particularly useful in communities growing rapidly by way of new residents moving in. |
| Trended Credit Data | Analyze up to 24 months of credit card payments to determine if an applicant’s financial standing is improving, declining, or stable. | When combined with traditional credit scores, trended credit data enables underwriters to more accurately price loans for risk and to identify risk factors not disclosed by credit scores alone. |
Analytics Pinpoint Potential Risk
Loan origination solutions with integrated analytics give community banks a more detailed and accurate understanding of how credit policies and underwriter decisions affect lending risk. Using configurable, self-service reports, banking professionals can explore many factors at the macro and micro level, and zero-in on those areas that present a real or potential risk. Analytics let community banks:
- Determine which borrower attributes or credit policies correlate with a propensity to default, then update underwriting decisioning criteria to reduce those risks.
- Identify loan payment patterns that predict delinquency, then proactively contact accounts with those characteristics and offer alternative payment plans to avoid delinquencies.
- Assess underwriter performance using the percentage of loans that have become delinquent or defaulted. Institute plans to improve underwriting skills.
- Discover an unusual number overrides in comparison to averages for underwriters. Investigate the reasons and the potential impact regarding portfolio performance.
- Uncover declines or terms that indicate a possible failure to comply with regulations such as the Equal Credit Opportunity Act (ECOA) or Servicemembers Civil Relief Act (SCRA).
Integrated analytics let bankers explore underwriting processes and portfolio performance without the need of data scientists. Consistent analysis of processes and performance is a great way for community banks to understand how evolving market conditions affect business—and to respond quickly with lending strategies and credit policies that maximize opportunity while minimizing risk.
Greater Efficiency and Lower Risk In Community Bank Lending
Community banks can experience the benefits of greater efficiency and better-quality lending decisions without the need for major IT upheaval. Cloud-based loan origination solutions that integrate with a wide range of lending services let community bankers implement and configure the solution to identify and mitigate risks. Integrated analytics delivers actionable insight to the desktops of community bank lending professionals, so that they can monitor risk factors and adjust lending policies accordingly.
Getting Started
defi SOLUTIONS provides configurable loan origination systems, loan management and servicing, analytics and reporting, and a wide range of technology-enabled business process outsourcing services services such as call centers, collection management, auto loan and lease care, or lease maturity management. If you’re looking to improve the ability to manage risk, take the first step in realizing the benefits of modern cloud-based solutions. Contact our team today or register for a demo.
