A borrower looking online for a mortgage lender

What’s The Difference Between Loan Origination And Mortgage Servicing?

While the same company can take care of loan origination and mortgage servicing, these two services are different at their core. Handling loans is a complex process that requires comprehensive servicing from the moment a borrower starts thinking about the mortgage to the date the last payment goes through.

Lenders have diverse teams working on loan origination and loan servicing to ensure a smooth procedure for all parties involved. With the right technology, like loan origination software, it’s possible to streamline the process and ensure 100% satisfaction for the borrower.

What is loan origination?  

Loan origination is the process of obtaining a loan. It starts with pre-qualification and ends with loan Loan origination is the process of obtaining a loan. It starts with pre-qualification and ends with loan approval. The steps in between include determining eligibility, deciding on the mortgage loan amount, working out the interest rate on the loan (loan pricing), assessing credit risk, making credit decisions, underwriting, and other decision-making processes. Various financial institutions originate loans, including banks, credit unions, and other mortgage lenders. These organizations might work with mortgage brokers during the loan origination process.

Pro tip: Even before the pre-qualification process begins, borrowers have a huge variety of questions about their mortgage. Usually, they try to find answers online. With support automation platform Capacity, it’s possible to catch these potential borrowers while they are browsing various options and give them the answers they are looking for.v

The common stages of the loan origination procedure are:

Pre-qualification.

During the pre-qualification process, the borrower collects the necessary documents (income, debt, financial assets, employment information, credit card information, credit reports, etc.) required by the lender to make a decision about the upcoming loan. The lender reviews the documents and provides a loan estimate of how much the borrower may expect to receive in relation to their down payment.

Pro tip: During the pre-qualification process, Capacity’s AI-powered chatbot can provide instant answers 24/7 and set up appointments with the loan officer after pre-qualification.

Loan application.

After pre-qualification, the borrower fills out a loan application. Some lenders still accept paper applications. However, in the majority of cases, applying for a loan can be done electronically.

While filling out a loan application, borrowers tend to have many questions, especially first-time homebuyers who have never applied for a loan before. Since the loan origination team is overwhelmed with requests, they can’t always answer immediately. Due to this, the seemingly simple application process stretches out in time.

Pro tip: By taking advantage of a support automation platform like Capacity, lenders can automate many Q&As, helping them to communicate with borrowers and expedite the application process.

Screening.

During the screening process, the loan provider checks all the necessary documents to make a decision about a home loan approval. They verify and analyze the potential buyer’s credit score, financial history, employment information, and more. Once the screening is over, the lender finalizes the loan application.

Pro tip: During the screening process, the lender has to work with dozens of documents. By storing them in Capacity’s AI-powered knowledge base, they can cut the time spent searching and checking a particular document.

Loan approval.

The last stage of loan origination is the loan approval process. The lender decides to approve or reject the borrower’s loan application based on factors such as creditworthiness, liabilities, and personal finance. If the decision is positive, the lender pre-approves the loan.

In the mortgage industry, the loan origination process can be time-consuming. With a variety of tasks to complete, documents to check and questions to answer, loan approval takes, on average, 45–60 days during high-volume months. By taking advantage of a support automation platform like Capacity, it’s possible to reduce the time tremendously while improving borrower satisfaction.

What is loan servicing?

Loan servicing begins the moment loan origination ends. It involves collecting the borrower’s payments and distributing them to the necessary parties (e.g., investors, insurers, tax authorities, etc.).

The loan servicing process involves:

  • Distributing the funds accurately and timely.
  • Maintaining a close relationship with the borrower to answer questions and catch problems on time.
  • Contacting the borrower if they miss or delay payment.
  • Helping borrowers end the loan agreement and leave their homes in case they can no longer pay the mortgage.

Loan servicing is an ongoing process that requires lenders to work with numerous documents and answer hundreds of questions.

Pro tip: With access to an AI-powered mortgage automation platform, it’s possible to streamline the process by:

  • Creating a single knowledge base for all documents and providing quick access to them.
  • Answering frequently asked questions from the borrower automatically 24/7.
  • Relying on AI to get access to the right information quickly during each stage of the servicing process.

In short, loan servicing is the process of handling all issues related to the mortgage after it’s approved and until it is fully paid off.

Loan origination vs loan servicing: Differences.

  • Origination and servicing are different stages of the mortgage lifecycle.
  • Loan servicing is a longer process than loan origination.
  • Loan origination is a more intense process than loan servicing.

Loan origination vs loan servicing: Similarities.

  • Loan origination and loan servicing require building a close relationship with a borrower.
  • Both processes involve a lot of documentation.
  • Loan servicing and loan origination involve a lot of manual work.

By taking advantage of Capacity, it’s possible to automate a variety of loan origination and loan service processes, improving the mortgage lifecycle for both the lender and the borrower.

Streamlining mortgage services with loan origination software.

Loan origination tools coupled with AI-powered chatbots and mortgage automation processes can help lenders handle many aspects of loan origination and servicing without overwhelming their teams.

By delegating manual work and Q&As to software, it’s possible to streamline mortgage services while improving client satisfaction and the company’s bottom line.

At Capacity, we focus on helping lenders stay on top of their game and become mortgage industry leaders.

If you’re interested in learning how AI can improve loan origination and servicing, click the button below.