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Automation in Loan Origination Process

Maria Johnson, Technical Writer

Mar 20 2023

Nowadays, most lenders are more concerned about improving the profit margins, minimizing risks, and offering services. Analytical and digitalized loan origination systems can mitigate the issues faced by the banks while offering loans. Depending upon the loan, the loan origination process will vary. The process involves several stages with documentation. Choosing a fast-paced method will reduce budget and operations demands as well as helps in taking advantage of the automation benefits.

All loan origination processes can be accommodated by automation system. Loan application’s pre-screening, processing, verification of credit score, and other pre-approvals can be done in loan origination automation.

What is Loan Origination?

When a person applies for a loan in any bank or lending organization and the process that takes place for processing that application by the lender is called Loan Origination. This process is usually tedious and laboring. It involves screening the application once the borrower has submitted it, where supporting documentation is checked. After examining the application and documents, the loan will either be approved or denied. If the loan is approved, then the amount of paperwork involved when needed to close the loan is taxing. This frustrating process can be eased by incorporating loan origination automation. Let’s see what processes are involved in the automation of the loan origination process.

Loan Application: Borrowers complete loan applications and submit them.

Documentation: Documents are submitted by the borrowers that show their proof of income, employment status, and their financial condition.

Underwriting: Borrower’s information is verified by the lenders, which contains inspecting the credit score and determining the financial status of the borrower.

Loan Approval: Loan to the borrower is approved or denied depending upon the underwriting assessment.

Automation for loan origination can reduce the involvement of human resources to a great extent as the process follows a standardized protocol.

Simplifying Applications for Loans

The first step involved in automating loan origination is the digitizing of the loan applications. Lenders can either use paper-based applications and make them digitized or create applications online and establish automated workflows to feed data depending upon the type of loan. Incorporating Artificial Intelligence in automation can also be used as an alternative. Workflow automation will simplify the application process, thereby decreasing the errors and increasing productivity. Loan verifying individuals don’t have to enter data manually or review the applications, as they can be done by the automation system. This saved time can be spent by lenders on addressing borrower’s doubts and resolving any issues.

Handling of Loan Documentation

Loan officers spend most of their time assembling the documents of the borrowers. Documents like proof of income and employment have to be collected properly. If any of the documents are left out, the officers will have to contact the borrowers and collect the missing document, which usually involves a lot of calls, text messages, or emails. The collected data then has to be converted to a format that’s appropriate for the underwriting process. This data conversation will reduce productivity if any error occurs during the process, thereby increasing the time required to process the loan.

A checklist is maintained by the loan officers to facilitate a smooth documentation process. An automated process for underwriting can be made by making this checklist a foundation. This automated workflow will regularly monitor the loan documentation’s status and can also send reminders to the borrowers to ensure successful completion of the loan happens. If there is no response from the borrowers then a trigger can be set to notify the loan officers, so that they can get a response from the borrowers.

After the submission of the data to the underwriting in the required format, the documents are fed into the system. Since documents vary in size, automating the underwriting process will help in identifying and obtaining the relevant data. Incorporating automation of the workflows in the underwriting process will reduce errors and increase productivity.

Acceleration of Underwriting

Since the underwriting process is necessary to assess and minimize risks, the duration for the loan getting approved is usually extended to a considerable time. However, if automation for the underwriting process is employed, then the loan approval period can be decreased significantly. Most of the processes in underwriting involve a standard pattern like checking whether the credit score of the borrower complies with the lender’s minimum standard, as the underwriters also provide a required assessment of the borrower.

Automation helps in shortening the waiting time, as it compares values against the lender’s minimum standard and alerts the underwriters if any discrepancies arise. Underwriters might ask for more information to clarify the difference. When workflow automation is added to the system, then the automated process will help in pointing out the questionable areas, which allows the underwriters to solve the issues as quickly as possible.

Adhering to compliance is a mandatory step for the automation process. When certain protocols are skipped during the underwriting process because of human error, the automation will flag those steps. This will ensure the employees address those issues ensuring the underwriting process is completed smoothly with no errors.

Reducing the Duration of Loan Origination

Both lenders and borrowers wish to complete the loan origination process quickly. Incorporating automation helps in making this goal a possibility. No matter the technology used by the lenders, automation can adapt and makes it easier for the lenders to assess the data. The time saved by the automation process can be spent on developing relationships between borrowers and lenders, as mortgage lending is a trust-based sector.

With the help of automation in the loan origination process, employees can complete the process quickly, thereby reducing the pressure that arises due to quicker turnaround. As the wait time for the loan origination process is reduced, the lenders will have an increase in productivity and the borrowers will have a satisfying experience.

Workflow Automation in Loan Origination

The lenders need to identify key areas where automation can be used in the loan origination process. Even though the whole process can be automated but applying an end-to-end solution consumes time. AI, OCR and RPA are some of the technologies available for automation. Finding out a suitable technology to be used for the automation for your business processes is crucial to achieve a successful deployment.

Productivity and customer satisfaction is increase significantly with the introduction of automation, as it greatly reduces errors, which usually increases the time required for loan approval. Using interactive technology like AI chatbots will help the ease the employees burden from answering basic monotonous queries. Automating a process will upgrade security and guarantee compliance. By minimizing employees interactions, it reduces the chances of unauthorized personnel handling the process, thereby complying with the regulatory guidelines.

As the lenders’ are forced to reconsider their workflow engines for adapting to a new environment, employing automation in their banking process have become crucial to yield a better result. If the lenders’ don’t have a contemporary plan for designing their workflow, then the lenders’ will have to face errors and increasing costs in a constantly evolving competitive market.