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What is loan origination automation?

by | Dec 2, 2021

The loan origination process will change depending on the type of loan. Invariably, loan origination requires a lot of documentation such as tax returns, real estate information and bank and credit card statements from financial institutions. Nonetheless, loan origination automation can play a part in pre-screening, application processing, credit score verification and pre-approvals. Processing loans have traditionally been paper and labor-intensive.

There’s the application and required documents. Then, there’s the screening process that needs documentation to support the decision to approve or decline a loan request. If approved, there’s a mountain of paperwork needed to close on the loan. The entire lending process can be frustrating for borrowers and loan officers. That’s where a support automation platform like Capacity can help.

Loan origination automation.

Loan origination refers to the process of applying for a loan through disbursing funds or denying the application. Much of the process is the same from application to application:

  • Loan application.  Borrowers complete an application.
  • Documents. Borrowers provide documents to prove income, employment status and financial condition.
  • Underwriting. Lenders verify the borrower’s information. The process includes checking credit scores and assessing a borrower’s financial status.
  • Loan approval. Based on loan underwriting, lenders approve or deny a loan request.

Because of the routine nature of loan origination, automation can reduce the amount of human intervention needed during the process.

Streamlining loan applications.

Digitizing loan applications is the first step in automation. Lenders can continue to use paper-based applications and have them digitized using intelligent document processing (IDP). Or, they can create online applications and establish automated workflows to ingest the data based on the type of loan. Alternatively, adding artificial intelligence to automation would allow a single workflow because AI would know what was required based on the application type.

Whether it’s IDP or AI, automation can streamline the application process, reduce errors and improve productivity. Loan officers do not have to review applications for completeness and they don’t have to enter data from a paper-based form. Instead, they can spend time addressing real-time borrower questions and resolving issues so the approval process moves smoothly.

Tip: Capacity’s support automation platform can collect information from borrowers through a conversational AI-powered helpdesk on your website. You can automate the loan application process and connect borrower information to your CRM system for quick customer follow-ups. 

Managing loan documentation. 

Assembling documentation such as proof of employment and income can cut into loan officers’ productivity. If the information is incomplete, they have to contact the borrower for the missing information, which can result in numerous phone calls, emails or text messages. It doesn’t matter if the information is submitted electronically or in hard copy. Loan officers have to convert the data into a format that underwriting requires. Data conversion can often result in errors that impact productivity and add to the time to process a loan.

Most loan officers use a checklist to ensure that all documentation has been submitted. That checklist makes the perfect foundation for an automated process. Automated workflows can monitor the status of loan documentation and even send reminders to borrowers to keep the process moving forward. Triggers can be established to notify loan officers if there’s no response so they can follow up with the borrower. 

Documents can be ingested using IDP, so the required data is submitted to underwriting in the required format. Because documents such as pay stubs or bank statements can vary in structure, more intelligent technology is needed to recognize and extract the appropriate data. Automating this process minimizes errors and maximizes productivity.

Tip: Capacity offers automated self-service onboarding for new loan officers in your organization. This support automation platform teaches employees how to manage loan documentation correctly after they join your team.

Expediting underwriting.

No one likes waiting, especially when it’s something as life-changing as buying a home. Yet, the underwriting process is essential for a lender to assess and mitigate credit risk. It’s not a place to cut corners. Automation can speed up the process without jeopardizing risk assessments.

Underwriters are responsible for verifying borrower information and creditworthiness. They also assess a borrower’s ability to pay off a mortgage by looking at credit reports, payment histories and debt-to-income ratios. While underwriters provide that essential assessment, much of the process involves routine tasks such as checking that a credit score complies with a lender’s minimum standards.

Automation can shorten the wait time. It can compare values against lender-required minimums and alert underwriters to the discrepancies. To clarify the deviation, underwriters may ask for more information. Instead of waiting until underwriters can sift through the data, an automated process can highlight questionable areas at the start, so underwriters can ask for clarifying information as early as possible.

Automation can also ensure compliance. Specific steps must be followed when evaluating a loan application. When employees are overwhelmed, it’s easy to skip a step in the process. With automation, the missed step can be flagged and addressed before the process is complete. This capability means lenders can ensure that the highly regulated process is followed.

Tip: Capacity streamlines the underwriting process by providing direct access to guidelines from USDA, FHA, VA and other organizations. Underwriters can close deals in a quicker timeframe and improve customer and financial service outcomes.

Shortening loan origination.

Both borrowers and loan providers want to complete the loan origination process as quickly as possible. Finding solutions such as automation makes achieving that goal possible. Whatever technology is deployed, automation makes it easier for lenders to evaluate data. They do not have to spend as long verifying and analyzing time-consuming information. Instead, they can have their loan officers spend more time building relationships with potential and existing borrowers, which is essential when working in a trust-based sector such as mortgage lending.

Faster mortgage processing makes for happier employees and borrowers. Employees can complete the loan origination process quickly, easing the pressure that comes from ongoing demands for faster turnaround. Borrowers have a better experience because their wait time is less. Lenders benefit from increased productivity and more satisfied borrowers.

Tip: Capacity provides your organization with a full pipeline for streamlining loan origination. You can reduce the burden of loan origination for employees and improve customer experiences. 

Automating loan origination.

For lenders to decide on the right technology requires an understanding of where to automate the loan origination process. Although the entire process can (and should) be automated, implementing an end-to-end solution takes time. Technologies such as RPA, OCR and AI play a part in the automation of business processes; however, knowing which technology is best for a given use case is what makes for a successful deployment.

For the mortgage industry, loan origination automation improves employee and customer experiences and increases productivity. It reduces errors that can lengthen the time from application to approval. Through interactive technology such as AI chatbots, lenders can free employees from answering routine questions about aspects of the loan process such as interest rates, pre-qualification, loan amounts and credit decisions.

Automating critical parts of the process can ensure compliance and improve security. Eliminating employee touch points reduces opportunities for unauthorized personnel to access borrower information. It helps control the flow of information to comply with regulatory guidelines.

Tip: Capacity’s automated AI-powered helpdesk provides borrowers with solutions to common loan questions, freeing up time and resources for loan officers in your organization. This support automation platform can answer 90 percent of queries without human involvement.