Loan processing automation is quickly changing the industry landscape. If you want to bolster your company's KPIs and become more efficient with your resources, software, automation and artificial intelligence can take a huge burden off your shoulders.
Much of the loan origination process involves routine and repetitive tasks, which can be handled by powerful loan processing automation software.
Quick Overview of the History of Loan Processing
Everything in the loan processing industry used to be centered around paper and a firm handshake. While digital systems introduced some efficiencies, the hybrid approach was a huge burden on underwriters. It also provided a terrible customer experience: home buyers had to submit various forms and documents by fax or scans they performed themselves.
Software: The New Era of Loans
The advent of SaaS and AI has allowed loan processing to enter a new era despite many lenders still being stuck in the past. While there are many components that make up loan processing automation, the three core software technologies that are changing everything include OCR, RPA and document processing, and AI.
RPA and Document Processing
Robotic Process Automation (RPA) is a key technology in loan processing automation that's able to handle redundant and repetitive tasks by extracting pieces of structured data and processing this data. Robots mimic human actions via a set of instructions. When implemented into loan processing, RPA is able to improve reliability, expedite processes, and reduce the amount of labor-intensive tasks that must be performed. Since these tasks are shifted over to robots, the human workforce can perform some of the more complex tasks.
Once RPA is implemented, it can help process documents, initiate loans, and compare financial information. All of these aspects of mortgage lending can be automated with the assistance of RPA technology. By automating these tasks, loans can be approved on a much shorter timeline. Quicker loan approvals lead to higher customer satisfaction rates.
Tip: Make sure that any new piece of software you buy for your business has RPA and document processing built in. If you use systems that don’t support RPA and aren’t ready to switch to one that does, that ok. Look for RPA software that fits your business process and that has integrations to what you currently use.
Optical character recognition (OCR) is a powerful technology that automates data extraction by lifting written or printed text off of an image file or scanned document. This text is then converted into data that can be read by a machine. It's common to pair OCR software with other automation solutions, which include RPA and AI. When you combine OCR with AI, intelligent document processing becomes much easier.
OCR can assist with practically every stage of the origination process. For instance, OCR software is able to read and extract the text on any paper or faxed documents sent with a loan application. When combined with AI, the text can be properly categorized and labeled, which eliminates the need for human review and speeds up the data entry stage of any loan application.
Another benefit of OCR in the lending process is the impact it has on the customer experience. Borrowers can submit scans or photos instead of having to fill out clunky digital forms.
Tip: You’ll notice that OCR and RPA have a lot of overlap. Usually software that does one can do both. What you want to check for in shopping for this type of software is that they integrate with your current tech stack.
Even though artificial intelligence is still relatively new in the loan processing industry, the upside of this technology is huge. For instance, AI can expedite loan processing automation by processing documents at a much quicker rate than humans are able to. AI is also exceedingly accurate.
When provided with the right parameters and commands, it's possible for AI and the software you use to make zero errors throughout the entire loan origination process. Keep in mind that the machine learning aspect of AI is able to use algorithms and past data to improve performance and become more accurate. As artificial intelligence continues to improve, more of the loan origination process should eventually be handled by AI.
Tip: There’s a lot of fanfare about AI in almost every industry. Some software vendors masquerade algorithms as AI - which is not the same thing. When booking demos, make sure to ask if the AI is powered by machine learning vs a simple set of pre-canned algorithms. The difference is that machine learning takes into large data sets and teaches itself trends.
AI in Loan Origination Systems
Many of the newer loan origination systems (LOSs) are powered by AI. That means the benefits of machine learning are already built in and guiding the decision-making process. Right now, most of these AI-powered LOSs are still at the startup stages, so it’s hard to gauge which ones have access to bigger pools of data (which affects the quality of the machine learning).
Tip: If you’re looking at switching LOSs, ask the software vendor if they can provide an estimate of how many loans their platform currently processes on a daily basis. That’ll give you an idea of the size of the pool the algorithm is learning from to make loan decisions.
How Technology is Changing Each Step of the Loan Origination Process
The aforementioned technologies are changing each stage of the loan origination process, which include everything from document management to the underwriting process. Below are some of the use cases of fintech in the loan application process:
New automation technologies make it easy for borrowers to submit a loan application and for this application to be reviewed. The initial step in automation involves digitizing loan applications. Lenders are able to digitize paper-based applications via intelligent document processing. It's also possible to develop online applications that use automated workflows to consume data based on loan type. Lenders can add AI to automation to facilitate a more streamlined workflow since AI can predict the next steps based on application type.
Regardless of the types of technologies that are used during the application process, automation invariably streamlines this process, boosts productivity, and reduces human error. Loan officers don't need to perform extensive application reviews to make sure that every piece of information is provided. They also won't be tasked with entering data into a computer from a paper form.
By having automation software handle these tasks, the loan officers can spend their time resolving complex issues or answering borrower questions, which will serve to reduce potential issues or roadblocks with the application.
The latest automation systems and technologies make document management as simple as requiring the applicant to drag and drop the docs that need to be submitted with their application. These systems make it easy for the loan officer to track down any missing docs and keep the data in a central portal. When loan officers are required to gather documentation involving income verification and proof of employment, their productivity invariably worsens.
The obvious benefit here is the reduction in manual processes. Because everything is digitized, the customer information gets ingested much quicker.
If ever this information is incomplete, the loan officer will then need to get in touch with the borrower to request any missing info. Loan officers must also convert data into a specific format that can be understood during the underwriting process. Manual data conversion usually leads to errors that create issues when it comes time to process the loan.
Using automation software to automate workflows means that loan documentation statuses can be monitored in real time. Reminders can even be sent automatically to borrowers throughout various stages of the approval or underwriting process. If there isn't a response from the borrower, the software triggers a notification to the loan officer. Documents can be consumed with IDP, which means that the data will be available in the correct format during underwriting. Automating this entire process reduces errors and bolsters productivity.
With every document in a single, centralized location, lenders are able to verify the info from these documents at a much quicker pace. OCR and AI technologies perform a first pass over the documentation to shorten the timeline. The underwriting process has long been among the most frustrating aspects of obtaining a loan. However, it's also necessary and should be completed without worsening risk assessments.
Underwriters are directly responsible for verifying a borrower's creditworthiness and information. Once an underwriter looks at payment histories, debt-to-income ratios, and credit reports, they can determine if the borrower will be able to repay the mortgage. Even though human underwriters are necessary for much of this process, a considerable portion of underwriting involves repetitive and routine tasks that include checking credit scores.
Automation is able to reduce the wait time by comparing borrower info to lender-require minimums. Alerts will automatically be sent to underwriters if ever a discrepancy is found. The underwriter can respond to this alert by asking for additional information. Instead of sifting through the data themselves, automated software can highlight the discrepancies immediately. Automation is also able to ensure compliance by flagging any steps that an underwriter misses. By complying with the myriad regulations that must be followed during underwriting, lenders can avoid making costly mistakes.
Expected Increases in Revenue for Lenders from Automated Loan Processing
With FundMore software, it's possible to reduce the amount of time it takes to review and approve a loan down to two hours. The amount of time a lender saves when performing automated loan processing should result in revenue increases. Being able to complete loans on a shorter timeline means that more loans can be processed in a set period of time.
Streamlining Loan Servicing Boosts Referral and Repeat Claims
By streamlining the loan servicing process and making sure that any delays are kept to a minimum, referral and repeat claims should increase significantly. Customers are now expecting this kind of portal from vendors for a better and more convenient experience. By increasing customer satisfaction, they will be more likely to come back at renewal time or send you referrals. Keep in mind that referrals can drive a considerable amount of business for any company and may be the difference between growing your revenues or staying flat.
New Mortgage Processing Software will Lower the Compliance Burden
Another top benefit of using automation for loan processing purposes is that the latest mortgage processing software is capable of reducing the lender's compliance burden. This software will flag any areas where you might have a gap in compliance, which allows you to resolve these issues and decrease the chances of landing in hot water. If ever a compliance review is ordered, your automation software will serve as a central document management system, which simplifies the process of referencing old files.
Automation streamlines every facet of loan processing, which is better for the lender as well as the borrower. More efficient loan processing leads to faster approvals and quicker underwriting. As automation software continues to improve with AI and machine learning, adoption of this tech in the industry should only increase.