Learn More About Loan Origination Software
What is Loan Origination Software?
Loan origination software manages the application, decisioning, and issuing process for lenders of various types of loans. These solutions automate large portions of the loan process for lenders and often streamline the application process for borrowers. Loan origination solutions are typically bundled with loan servicing functionality to provide users with full-service loan management tools. These solutions are designed to automate credit scoring and decisioning while reducing risk, give customers more agency by providing a self-service portal, manage loan related documents, and allow lenders full insight into what loans are being extended to who.
Key Benefits of Loan Origination Software
- Automate the rating and underwriting process
- Provide insight into and control over the loan origination process/li>
- Give customers self-service options via a client portal
- Improve the loan management process
Why Use Loan Origination Software?
Loan origination software is beneficial for a few reasons. These solutions facilitate the essential digitization of the loan industry, giving lenders the tools to improve back end processes and front end user experience.
Cost reduction — Loan origination solutions reduce the number of tasks that need to be taken care of by human agents, reducing unnecessary overhead. By automating decisioning at the credit approval stage and allowing customers to self-service accounts via client portals, loan origination software gives lenders valuable time to focus on more value adding tasks. These tasks can be centered around strategy or prospective client outreach. Clients can upload documents, update information on file, check up on the status of their requests, and more without needing to get in touch with a human agent. As long as the routing is well crafted and the back end set up handled properly, loan origination tools should make significant progress in reducing the amount of work lending agents need to sink into servicing their accounts. Financial institutions are always looking to reduce fixed costs, and the potential for a reduction in the number of agent hours spent on servicing accounts doing tasks that could be automated means that they can focus on growing the business.
Increased control — Lenders can set the rules in their automatic decisioning engines, and have more insight into their business with the analytics tools that loan origination solutions provide. Financial institutions that use loan origination solutions have a consolidated data set, with all origination activities in a single place. Lenders can drive increased efficiency and improved processes by using loan origination software. Loan origination solutions provide a single dashboard from which to manage an entire loan portfolio.
Automation — Loan origination solutions automate large swaths of the back end processes that lenders conduct. The automation accelerates the loan process, driving quicker decision making and allowing institutions using loan origination solutions to make rapid offers to potential customers. Financial institutions are increasingly looking to automation to cut costs and improve efficiency, and loan origination solutions can help a great deal when it comes to that.
Who Uses Loan Origination Software?
Within the broader designation of lenders, there are several subsections of the industry that use loan origination software. Financial institutions that offer loans are the primary users of loan origination solutions leveraging these tools to automate underwriting, verify documents, approve credit, and more.
Commercial lenders — Commercial lenders are loan professionals in credit unions, banks, and other financial institutions.
Mortgage lenders — Lenders who focus entirely on mortgage lending. These are end-customer focused lenders dealing with relatively large loans for the purpose of purchasing a home.
Borrowers — Borrowers interact with the customer portal provided by the loan origination solution.
Construction lenders — These lenders focus primarily on extending loans for construction projects.
Loan Origination Software Features
Loan origination software often contains, but is not limited to, the following features.
Document management — Loan origination solutions manage borrower documents, including the ability to verify relevant documents to help determine an individual applicant’s creditworthiness.
Loan processing — Maintains a repository of loan related documents, collecting new ones from incoming customers and aiding in the preparation of the documents.
Compliance management — Provides compliance management functionality for loan origination specific policies and the ability to change to comply with updated regulations.
Underwriting and rating — Automates underwriting and rating functions by providing built-in risk analysis. This feature allows users to construct custom approval rules.
Client management — Contains client information and facilitates client-lender communication. Consolidating client communications within the platform reduces the number of channels clients have to communicate with the lender.
Audit trail — This feature ties to compliance, and allows lenders to audit loan origination activities. Audit trails also provide better visibility into loan changes and streamline the process for any external third-party audits.
Pricing engine — Allows customers and potential customers to build out different potential loan situations and test out different inputs.
Customer portal — Self-service customer portal through which borrowers can upload documents, update information, check on account status, make loan payments, and more. The portal drives more engagement with fewer resources expended by the lender.
Loan servicing — Either provides bundled loan servicing functionality or integrates closely with a loan servicing solution. This provides a full service loan management solution for lenders.
Dashboards — Contains centralized dashboards for loan portfolio management.
Potential Issues with Loan Origination Software
Integration — Loan origination software needs to have solid integrations to other types of software like loan servicing software and mortgage CRM software, or contain integrated functionality that mirrors the feature sets of those types of solutions. Loan origination solutions should be relatively comprehensive, providing lenders with a holistic tool designed to take care of all loan management related needs. The goal of loan origination solutions is to drive success for lenders, which is why ease of use is key. Good integrations are vital to the ease of use, as they facilitate a consolidation of lending related data and eliminate possible headaches that accompany the use of multiple disparate systems that are not connected.
Security — Data security is extremely important for lenders looking to stay compliant with increasingly strict regulations around financial data. Financial data is important information that needs to be protected. Loan origination systems collect and maintain detailed financial records on lenders’ clients and prospective clients, making the systems’ security vitally important.
