Salesforce loan original system critique


The defi Team Banking, Compliance, defi INSIGHT, Originations

Underwriting compliance ensures only compliant loans are approved

The demands necessary to run an efficient, profitable lending operation must be balanced against compliance with constantly changing regulations. These lending regulations are included in legislation like the:

  • Truth in Lending Act (TILA) 
  • Electronic Fund Transfer Act (EFTA)
  • Fair Credit Reporting Act (FCRA) 
  • Gramm-Leach-Bliley Act (GLBA) 
  • Servicemembers Civil Relief Act 
  • Fair Debt Collection Practices Act (FDCPA) 

All this legislation also governs the auto lending industry. Many states have additional regulations, which the Consumer Financial Protection Bureau (CFPB) supports.

A quick review of the CFPB Automobile Finance Examination Procedures shows what auditors do when conducting an examination. The focus could be any part of the end-to-end lending cycle. To achieve, maintain, and demonstrate underwriting compliance, lenders must appropriately monitor, interpret, and implement the relevant regulations. Lenders need to do all this while still maintaining the efficiency and profitability of their businesses.

Underwriting Compliance: Modern LOS Features That Enable It
Automation✔ Ensures consistency in both process and decision-making, along with preventing manual errors
✔ Establishes workflows that can be tracked, analyzed, and audited
✔ Alerts lenders automatically to non-compliant conditions
✔ Supports automated approvals or rejections, automated conditioning, automated deal structuring, and automated funding.
Configurable Decision Rules✔ Enables lenders to implement steps and verifications
✔ Ensures compliance with federal and state regulations
✔ Enforces disclosure rules and eliminates manual steps that could result in a different outcome
✔ Controls and tracks who can configure the system
✔ Provides no-code configurability for workflows, rules, policies, and compliance  
Data-Driven Decisions✔ Integrates third-party data and services, such as identity verification, alternative credit data, vehicle valuations, and document services, which empowers lenders to:
  • Avoid the risk of identity fraud
  • Generate a detailed, accurate, and current applicant scorecard
  • Structure loan terms to reduce risk to both borrower and lender
  • Keep an auditable record of all communications between the borrower and lender

✔ Enables configuration of data and services to ensure compliance with underwriting requirements
✔ Supports data analytics to identify any areas or instances that show undue risk

Technology: Essential for Underwriting Compliance

For any matters regarding compliance, the burden of proof is on lenders. So, what is the best way to achieve, maintain, and demonstrate underwriting compliance for lenders? The solution is in technology. Modern lending software platforms offer distinct advantages over manual processes still being used to support underwriting compliance by:

  • Ensuring consistency in both process and decision-making, along with preventing manual errors.  
  • Establishing processes that can easily be tracked, analyzed, and audited.
  • Automatically alerting lenders to non-compliant conditions. 

Modern lending software allows lenders to build in compliance from the ground up. It helps lenders configure their workflows and decision rules to provide a foundation for implementing the required regulations. The ability to customize these software tools makes it easier for lenders to modify them when regulations change. With sophisticated analytics and reporting capabilities, lenders now have access to the most accurate statistics on underwriting procedures. Here’s how a modern loan origination system (LOS) uses the latest technology to achieve, maintain, and demonstrate underwriting compliance.

Achieve Underwriting Compliance  

A modern LOS already supports well-established regulations, so lenders don’t need to start from scratch. The processes and rules to comply with Regulation-Z of the Truth in Lending Act (TILA) are already incorporated into the underwriting workflow. Regulation B of the Equal Credit Opportunity Act (ECOA) is similarly supported, including the ability to automate any adverse action notices. Whenever a notice is generated, the applicant’s information and the purpose of the notice are automatically inserted into it. Then, depending on the applicant’s opt-in preferences, the notice can be printed and mailed or emailed. The system also automatically maintains an electronic record of all communications.

Configurable Decision Rules

Configurable decision rules are powerful tools that let lenders implement steps and verifications. They also help ensure compliance with various state regulations, such as usury and fee limits. Decision rules can easily be configured to test these limits and programmed to alert lenders when exceeded. Automated rules also ensure that decisions are executed consistently for every applicant. Decision rules enforce disclosure rules and eliminate manual steps that could result in a different outcome.

A modern LOS additionally allows lenders to control who can configure the system. By assigning configuration roles and responsibilities to qualified individuals, lenders control who can implement system changes. There’s no need for these people to have technical or programming skills either. The system records these configuration changes and details who implemented changes and when these occurred, along with workflow details, decision rules, or other changes to system configurations. 

Data-Driven Decisions

The volume and quality of data available to today’s lenders allow them to make better quality decisions, though this data needs to be incorporated into the underwriting process to do so. Data sources and services such as identity verification, alternative credit data, vehicle valuations, and document services help lenders avoid risks that jeopardize compliance. These sources and services empower lenders to:

  • Avoid the risk of identity fraud.
  • Generate a detailed, accurate, and current applicant scorecard.
  • Structure loan terms to reduce risk to both borrower and lender.
  • Keep an auditable record of all communications between the borrower and lender.

These data sources and services are pre-integrated into a LOS. Then, during the underwriting process, lenders can easily configure those data sources to automatically access data specific to an applicant or particular vehicle. This gives lenders more confidence that they comply with underwriting requirements and make consistent, data-driven decisions.

Maintain Underwriting Compliance

Modern LOS can help lenders comply with regulations and also help maintain compliance. As regulations change, those authorized to do so can easily reconfigure menus, workflows, decision rules, and third-party data integrations when needed. Lenders then can test these configuration changes to ensure they execute correctly before implementing them. This will ensure that no unforeseen impact occurs regarding qualification attributes.

For lenders with widely distributed operations, it’s essential to keep abreast of any changes in state regulations. To properly maintain compliance, lenders need technology, like a modern LOS, and employees with ample knowledge of compliance policies. Partners help lenders navigate regulatory complexities, offering solutions that complement underwriting processes implemented by lenders to maintain compliance.

Demonstrate Underwriting Compliance

Configuration, workflows, decision rules, and integration with relevant data sources and services are all technological tools that allow lenders to achieve and maintain compliance when underwriting loans. A modern LOS also provides for:

  • Configuration tools ensure only qualified and authorized personnel can implement changes.
  • An audit feature that maintains a history of all changes made, including who made them and when.
  • Workflow tools ensure proper steps are consistently taken to comply with regulations.
  • Automated decision rules within an LOS maintain consistency in executing decisions for all applicants.
  • Integrations that allow for automated capture and storage of documents and communications between applicant and lender helps keep vital digital records secure

By replacing manual underwriting steps with consistently executed workflows and decisions, lenders can track and record all processes, steps, data, decisions, and communications. These records provide irrefutable evidence of a lender’s efforts to comply with underwriting regulations. Along with all of the applicant and loan data acquired and generated during the underwriting process, these records provide a rich source of information that can then be analyzed to provide further evidence of regulatory compliance.

Analytics also provides a summary of data regarding underwriting processes. It allows lenders to dig deeply into the details of a specific loan. Using analytics, a lender’s procedures and policies can be evaluated to ensure compliance with regulations. Analytics applications can identify any areas or instances that show undue risk. The wealth of data from the underwriting process can also be combined with analytics processes to convincingly demonstrate that lending practices comply with current regulations.

Technology Enables Compliance and Efficiency

Complying with numerous and changing lending regulations demands significant and sustained efforts by lenders. However, the challenges of achieving, maintaining, and demonstrating compliance need not conflict with running a lending business efficiently and profitably. Configuration, workflows, decision rules, and alternative credit data integration help lenders maintain compliance. These tools also improve process efficiency by eliminating many steps that were previously done manually.

There are long-term benefits as well. For example, lenders can use analytics on data generated via the underwriting process to identify areas where they can improve their processes. A modern LOS helps lenders do that and more.

Getting Started

defi SOLUTIONS is redefining loan origination with software solutions and services that enable lenders to automate, streamline, and deliver on their complete end-to-end lending lifecycle. Borrowers want a quick turnaround on their loan applications, and lenders want quick decisions that satisfy borrowers and hold up under scrutiny. With defi ORIGINATIONS, lenders can increase revenue and productivity through automation, configuration, and integrations and incorporate data and services that meet unique needs. For more information on how to use loan origination KPIs to improve your lending processes, Contact our team today and learn how our cloud-based loan origination products can transform your business. 

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