Introduction
Lenders rely on a lot of tools to serve their customers, with many of these taking the form of automated software platforms. Given the sheer amount of data and calculations that go into underwriting all types of loans, this is hardly surprising. Software is invaluable for speeding up and streamlining the lending process, ensuring accuracy while cutting down on the need for manual data entry, analysis and processing.
One of the most important of these tools is what’s known as loan origination software (LOS). These platforms manage loan applications from start to finish, automating and simplifying the handling of borrower data, underwriting rules and funding capabilities for lenders. Unlike the clunky spreadsheets and ad hoc processes lenders used to rely on, modern LOS platforms are more efficient, more accurate and more powerful. They serve as the backbone for the loan origination process for lenders of all sizes. These software platforms are built not only on the most advanced technology and programming acumen, but also deep lending expertise from professionals who know what it takes to keep both lenders and borrowers happy.
Choosing the right LOS means lenders have a number of important considerations to keep in mind. One of these is choosing between an LOS configured for consumer loans and one intended for mortgages.
Consumer Loan Origination Systems
As the name implies, consumer LOS systems are focused on handling personal loans, auto loans and lines of credit. They typically include features such as real-time credit data integration, KYC verification and AI-empowered decisioning to help lenders speed up the approval process without sacrificing controls that prevent fraud. One of the most important features these platforms can include for lenders is the ability to create configurable workflows to help them meet their regulatory requirements. On the borrower side of the equation, these platforms offer self-service portals and omnichannel communication capabilities that enhance customer satisfaction and engender more loyalty and confidence in the lender.
Mortgage Loan Origination Systems
Because home loans are quite different from consumer loans, they require a specialized software solution engineered specifically to smooth out these processes. Mortgage LOS platforms must be capable of managing heavy documentation, income verification and property appraisal tasks that are critical components of the mortgage origination process. They also have to be designed to contend with the strict regulatory frameworks for mortgages such as RESPA and TRID, with specialized workflows to ensure accurate disclosures. Additionally, because mortgage underwriting involves multiple stakeholders and longer timelines, digital collaboration and status tracking tools are essential. Other important features for mortgage LOS platforms include integrations with appraisal and title services, secure document management and configurable rules for multiple jurisdictions.
Comparing Consumer vs. Mortgage LOS
Lenders who handle both consumer loans and mortgages need software solutions that are tailor-made for each product. The relatively simplicity of consumer loans in relation to mortgages means there are vastly different requirements in terms of data collection and processing time. Each product also calls for different types of documentation, with income proofs and property valuations needed for mortgages while consumer loans require identity and credit checks. Adding in the differing regulatory oversight frameworks for both, and it becomes obvious that lenders need specialized platforms for each — or an end-to-end solution that is capable of handling both types of loans.
The Benefits of an End-to-End LOS Solution
Having a unified LOS platform can be the answer for financial institutions who have to contend with mortgages and consumer loans at the same time. An all-in-one LOS platform eliminates data siloes and makes it possible for banks to achieve seamless transitions from application to servicing. With configurable workflows, lending institutions can adapt to the evolving regulatory landscape and adjust their internal processes accordingly without costly custom development.
A highly configurable LOS platform also gives lenders the ability to handle their disclosure and data collection requirements, keeping them in compliance with critical consumer protection laws such as TILA, RESPA and ECOA. These systems can in many cases provide automated continuous monitoring of regulatory changes and adapt to them with configurable compliance rules, which means lenders won’t have to worry about overhauling their core systems every time the laws are updated.
With an end-to-end LOS, lenders can improve the speed of their processing by as much as 70% and eliminate up to 90% of manual errors. This technology also helps improve borrower engagement through consistent messaging and self-service portals. Being able to manage multiple loan products within a single scalable system gives lenders the opportunity to streamline their operations and achieve cost savings that weren’t possible in the past.
Looking Ahead
With machine learning, predictive analysis and other advanced software capabilities being introduced to LOS platforms, these systems have the potential to revolutionize credit scoring and fraud detection. Other advancements that have improved the functionality of LOS platforms include digital identity verification, open banking APIs and real-time data feeds that can enhance the customer experience as well as risk management.
Many LOS platforms are moving to a cloud-based architecture and a software-as-a-service pricing model, accelerating the deployment of updates and keeping costs lower for lenders. With the laws surrounding data privacy and governance continuing to evolve, it’s clear that LOS platforms will continue to be valuable tools for lenders handling consumer loans as well as mortgages.
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