7 Strategies for Automating the Loan Life Cycle

The mortgage industry has enjoyed a decade-long period of prosperity. Following the housing crisis and subsequent Great Recession from 2008 through 2009, historically low borrowing rates prompted first-time buyers to purchase homes, existing homeowners to trade up to ever-larger abodes, and millions to refinance their mortgages to low-rate 15-year and 30-year fixed-rate loans.

But now, rising rates are dampening demand for all types of borrowings, including mortgages, consumer loans, and commercial and small business loans.

After reaping the rewards of low rates and a hot real estate market that has generated massive refi and new loan business for years, lenders are now facing an extended period of relatively subdued origination volume.

This slower pace of activity makes it an ideal time to conduct a full operational review and identify opportunities to streamline procedures, eliminate bottlenecks, reduce manual steps, and evaluate the costs of loan origination, servicing, and portfolio management.

Many lenders are seeing the benefits of workload automation in their loan origination, servicing, and portfolio management processes. According to Experian, more than 70% of organizations have adopted AI and machine learning to enhance their credit risk management, fraud prevention, and customer experience. In addition, three out of four were in the process of improving or rebuilding their analytics models.

By implementing automation throughout the loan life cycle, lenders will embed greater efficiency, cost savings, and risk management into the process, ensuring they are best prepared for the next upturn in lending activity.

7 Areas Ripe for Automation

Whether your organization specializes in mortgage lending, consumer lending, commercial lending, or all three, automation can produce efficiencies throughout the loan process. Here are some areas to focus on as you begin your automation journey:

1. Collecting financial information: In commercial and mortgage lending, gathering customer data and financial information is a time- and labor-intensive process. And although less borrower information is required for analysis in consumer lending, shortening loan cycles is essential to maintaining competitiveness.
   
   Online portals that allow borrowers to submit documents can add efficiency and create a better customer experience. Automated notifications and alerts can keep borrowers in the know as their application flows through the necessary steps toward a decision and closing. And automated alerts that notify key staff when an applicant uploads new information help accelerate processing times.
   
2. Credit analysis and underwriting: As one of the most labor-intensive steps in the credit cycle, credit analysis and underwriting offer significant opportunities for efficiency gains through automation.
   
   Credit scoring models can reduce risk and ensure underwriting consistency, while supporting newer credit analysts in their training and development. For more complex deals, including those in commercial real estate and commercial and industrial (C&I) lending, the use of optical character recognition (OCR) and robotic process automation (RPA) can help accelerate decision times by reading commonly used data points and auto-filling fields within the spreading software for further analysis.
   
3. Decisioning: Once you’ve gathered and analyzed the borrower’s information, automation can help accelerate the decisioning process as well.
   
   For simpler deals like auto loans, HELOCs, and even small business loans, auto-decisioning can significantly reduce the time and effort involved in approving (or declining) a loan, reducing the time for this process to mere minutes. This allows loan officers and other decision makers to focus their time and expertise on more complex or borderline deals, helping to reduce overall risk.
   
4. Developing the credit presentation: For more complex commercial loan requests, an internal credit committee must often approve decisions. Credit analysts will prepare a multi-page credit presentation containing financial spreads, a narrative section, and a decision recommendation.
   
   Lenders can save significant time by utilizing credit presentation templates and auto-filling financial and account information from the loan origination system (LOS) and/or the core system. Automation can reduce the efforts of credit analysts and loan officers, enabling faster credit committee decisions and allowing staff to spend more time servicing their borrowers and prospects.
   
5. Integrating the LOS with the core: Most lending institutions rely on one or more loan origination systems to accept, analyze, decision, and process loan applications. While most of the steps involved in loan origination and approval reside within the LOS, once the loan is closed, the loan and borrower information must be transferred to the bank’s core processing system as the accounting system of record.
   
   Through workload automation and orchestration, virtually all manual steps involved in coordinating and validating data across multiple systems and platforms can be eliminated. In this way, lenders can ensure optimal data validity and accuracy, reduce or eliminate data entry errors, and improve reporting and tracking.
   
6. Loan servicing: In loan and mortgage servicing and payment operations, workload automation can improve the borrower experience and save significant processing time in the back office.
   
   For example, by automating critical daily and monthly mortgage processes, and employing a direct application programming interface (API) between its mortgage LOS and core processing systems, Achieva Credit Union has captured significant time savings, with daily processing that’s up to 60 times faster, and monthly processing that’s up to 24 times faster.
   
7. Portfolio management: Lastly, workload automation can deliver increased efficiencies in loan portfolio management and monitoring.
   
   Traditionally, lenders manually performed tasks like tracking annual reviews, adjusting risk rating, and monitoring collateral and covenant requirements through spreadsheets. They would also manage requests to borrowers for updated information and financial statements through inefficient email or the postal service.
   
   Through automation, lenders can now upload and file new documents and information, analyze changes in condition, and run portfolio analytics through easy-to-view dashboards that provide key data points in real time.

To enhance operational efficiency, regulatory compliance, and risk mitigation while achieving unprecedented visibility into their operations, today’s lenders need a comprehensive workload automation platform that goes beyond traditional job scheduling software. They also require an easy-to-implement solution that provides full orchestration, can be rapidly deployed, and offers 24/7 service reliability through the support of a world-class, client-first service team.

Workload automation and orchestration is a solution designed to help lenders deliver superior borrower and employee experiences and get time back to focus on strategic and growth-oriented initiatives in a competitive industry. For the modern lending institution, it’s needed now more than ever.

To learn more about how workload automation and orchestration can enhance operational efficiencies throughout the loan cycle, download SMA’s latest eBook, Strategies for Automating the Loan Life Cycle.