By Michael Detwiler
New loan origination system a window into heart of deal

Back in ’05, I warned that the loan origination systems of the day would soon be relics.

Anyone in the lending business for that long knows I hit the mark. Those early loan origination systems were replaced by an array of tools that provided a variety of functionality.

For a while, it wasn’t clear what the loan origination systems of the future would look like. Perhaps, many thought, it would be different for each lender.

As most of the dust has settled from the financial crash and the government takes steps to avert a repeat, the requirements for loan origination systems of the future are finally becoming clear.

The platforms that survived the financial meltdown and stand ready to be deployed in a wake of regulatory changes brought by the Dodd-Frank Act are different from legacy systems in a number of ways.

The new loan origination system is no longer just a central database of record. It is a compliance window into the very heart of the deal. The new system is a fully connected nexus at the center of an enterprise lending system that extends beyond the corporate walls to interface with partners and other service providers.

In many cases, it provides web-based functionality that gives borrowers an online doorway to the transaction. More than a software application to originate a loan, the new LOS has become the place originators go to do their work - in their office, in the borrower’s home or at the beach.

The need for a truly end-to-end system that will allow an enterprise-wide set of automation tools to streamline processes, limit the cost of operations and increase profitability is obvious. The traditional process for originating a loan is manual and task-based. This is not suitable when compliance requirements impact every step of the process.

The traditional loan origination system is tailored to that manual process; therefore, it incorporates manual processes into the product design instead of automating these activities. And the cost of failure here is very high.

The loan origination system of the future makes it possible to track compliance concerns throughout the loan origination process and halt an automated process immediately should a concern arise. They can do this because they were designed to interact in this way initially.

But even more important is that the loan origination system of the future can make data available directly to government regulators when and how they want it.

This will become increasingly important, as the Consumer Financial Protection Bureau ramps up to speed.

The industry now has access to an enterprise-wide set of automation tools that can streamline processes, squeeze costs out of operations and increase profitability.

Enterprise resource planning and supply-chain management revolutionized the business of manufacturing years ago. Over the last few years, that intelligence has made its way into mortgage lending, where, at the end of the day, we are just manufacturing mortgages.

Just like manufacturing of any other product, the loans we write require certain raw materials (data) and suppliers (settlement service providers) to that make up the supply chain required to build a mortgage.If we are just a different kind of manufacturing operation, can the mortgage lending industry reach an enterprise-wide set of automation tools that streamline processes, squeeze costs out of operations and increase profitability?

Of course, we can and we have, with the loan origination system of the future standing as the perfect example. These new systems help us eliminate paper from the origination processes, reduce manual data entry and provide significant efficiency gains and reduced compliance risk.

The nation’s largest lenders already embrace enteprise-lending solutions and the tools are trickling down to the mid-tier.

In the past, lenders were forced to reach out to third parties for functionality to connect them to partners through electronic networks. The new loan origination system contains most of this functionality, allowing the lender to reach out as needed in a secure manner, capturing data and logging it securely into the database without manual intervention.

It is likely the CFPB will require more transparency between lender and borrower. Today’s loan origination systems make it easier to share information in a secure way with the borrowers they serve. In many ways it’s an extension of the built-in partner networks with slightly different roles and permissions.

Critically important to today’s lenders is the new system’s ability to help fight fraud at the point of sale. With loan quality high on the list of investor requirements, lenders need to know about problems as close to the point of sale as possible.

Finally, the loan origination system of the future is different because it was designed to be flexible and used across the enterprise. Niche-based tools of the past can no longer keep pace with the rapid change in the industry. Only systems specifically designed to change easily will survive.

Because there are so many requirements being placed on the loan origination technology of the future, expect to see more smaller systems leaving the stage in the months ahead and more enterprise-wide systems moving down from the nation’s top lender tier into the mid-tier.