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Businesses are always looking to improve their operations, and consumer lenders are no exception. One area where technology can make a significant impact is in the loan origination process. This crucial early stage involves gathering extensive information and evaluating an applicant’s creditworthiness while adhering to strict rules and regulations. Beyond expanding their portfolios, lenders can use the loan origination process to build customer loyalty.
The extensive data involved in loan origination makes it an ideal candidate for digitization. By leveraging technology, lenders can streamline their operations, speed up workflows, and reduce risks. This increased efficiency results in quicker decision-making, enhancing the overall consumer experience. Although technology can benefit many aspects of a lender’s operations, the loan origination process is where it can have the most profound impact and many banks turn to BankPoint for a robust solution.
Steps of the Loan Origination Process
From prequalification to the funding of a loan, using technology benefits both lenders and their customers. Modern loan origination systems (LOS) automate the process, which expedites communication and reduces risk. Quick decisioning shows consumers that a lender has efficient processes in place, which will allow them to respond to other issues quickly. At every step, technology improves the confidence and security of all parties involved.
Step 1: Pre-Qualifying Period
In this initial stage, applicants provide essential information that lenders use to make informed decisions. Prequalification data includes:
- Banking information
- Birthplace
- Current employer
- Date of birth
- Email address
- Occupation
- Signature
- Source of income
- Legal name, including maiden or middle names
- Marital status
- Permanent residential address
- Personal identification number from an official photo ID
- Telephone numbers
Loan origination technology can be configured to gather and process this data efficiently, enabling better decision-making. Configurable software solutions are crucial, as they allow lenders to adapt to changing customer needs or market conditions. These solutions can also help identify customers close to paying off their loans and offer them special deals.
Step 2: Applying for a Loan
The application process can be cumbersome for both applicants and lenders, which is why many lenders have moved applications online. Digital applications significantly reduce errors compared to paper applications and offer several benefits:
- Adaptability to changing market conditions
- Accessibility from anywhere with an internet connection
- Digital capture of supporting documents like photo IDs
- Improved efficiency and accuracy by guiding applicants through the process
- Elimination of manual decisioning processes
- Rapid decision-making, often without underwriter intervention
- Expanded reach to more potential customers, especially those preferring mobile transactions
- Easier targeting of specific market segments
Automating the application process allows lenders to quickly process applications and expand their portfolios without increasing risk.
Step 3: Processing the Application
During this stage, a lender’s credit department reviews the application for completeness and accuracy. Many online applications won’t let applicants proceed if required fields are missing, speeding up workflows and maximizing efficiency. A good LOS will automatically apply decision rules to assess an applicant’s creditworthiness, resulting in near-instant decisions and consistent compliance. An automated LOS can also flag certain applications for review, allowing for the use of alternative credit data and trended credit data during underwriting.
Step 4: Underwriting Process
In this critical stage, lenders evaluate and mitigate risk by reviewing credit scores and other relevant data. A modern LOS system helps determine the next steps, such as:
- Requesting more information from the borrower
- Pulling additional information from internal or external systems
- Automatically approving, declining, conditioning, or restructuring the loan
- Referring to complex pricing matrices to find the right deal for both the lender and borrower
Automation allows lenders to make data-driven decisions and maintain evidence of compliance for audits. Underwriters are still needed to evaluate flagged applications that aren’t automatically approved or declined.
Step 5: Quality Control
This final review stage ensures that the application data complies with all rules and regulations. Automation plays a valuable role in this highly regulated industry, freeing up human resources to improve operational scalability. Automated decisioning and risk evaluation reduce the chance of human errors, making the quality control stage more efficient. This efficiency reduces the time to funding, which is crucial in today’s loan origination process.
Step 6: Funding the Loan
Once all compliance issues are addressed, the loan is ready for funding. A lender’s LOS ensures that:
- All data has been collected
- The applicant’s creditworthiness has been evaluated
- The loan has been approved by an underwriter
An LOS can track the funding stage, ensuring everything is in place for loan servicing. By integrating with payment software, lenders can automate loan payments once the loan is approved for disbursal. Efficient repayment processes are vital for lenders, as this is where they generate profits.
Getting Started with defi SOLUTIONS
defi SOLUTIONS is revolutionizing loan origination with software and services that help lenders automate, streamline, and optimize their lending processes. Borrowers want quick turnaround times on their loan applications, and lenders need fast, reliable decisions. With defi ORIGINATIONS, lenders can boost revenue and productivity through automation, configuration, and integration, providing data and services tailored to unique needs. For more information on the loan origination process, contact our team today and discover how our cloud-based loan origination products can transform your business.
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