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Understanding Loan Origination Software: a Deep Dive into Functionality and Workflow

Loan origination software plays a pivotal role in streamlining operations for financial institutions, enabling efficient management of loan applications from submission to approval. Today we want to demystify this software by exploring its main features and going over the key benefits.

Overview of Loan Origination Software

Also called loan processing software, a loan origination solution serves as a comprehensive tool for managing documents through the entire loan lifecycle. From initial application submission by borrowers to final approval by lenders, the software automates and organizes numerous tasks, reducing labor costs and the risks of human error. Loan processing software’s primary purpose is to expedite the loan approval process while maintaining compliance with regulatory standards.

Key Loan Processing Features

• Loan Application Collection

  • Borrowers can submit loan applications electronically through a customer-facing portal, or underwriters can submit a loan in the backend.

  • Paperwork such as pay stubs, tax returns, bank statements, and legal forms can be uploaded and added to the loan application as supporting documentation.

• Document Management

  • Optical Character Recognition (OCR) technology extracts data from scanned documents and fills indexing fields, allowing for automatic sorting.

  • Version control ensures that the most recent documents are accessible to all authorized parties.

• Workflow Automation

  • Loan origination software creates predefined workflows that guide applications through various stages of review.

  • Notifications and reminders alert team members about pending tasks, ensuring fluid processing and timely completion.

  • A decision-maker can use a custom eSignature or sign off using DocuSign, depending on the loan processing software.

• Regulatory Compliance

  • Audit trails maintain a detailed record of all changes to a document, taking care of compliance and preparing teams for audits or regular review.

  • Notifications will be sent when a contract is due for review or when a document needs to be purged from the system, adhering to regulations.

  • Administrators set up user permissions for the whole team, determining access for each role, folder, and document.

• Editing and Collaboration Tools

  • Secure document sharing and editing systems enable seamless coordination between lenders, underwriters, and third parties.

  • Certain document types, such as fillable PDF forms, can be edited in the system as needed.

The Loan Process – Workflow Automation

Here is an example of a workflow that a team might implement in their loan processing software. We have separated this into individual steps.

1. Application Upload: A portal or an email can be set up so that potential borrowers can easily submit their loan applications online. They can also include additional paperwork as needed (such as scanned identification). From there, you can have the folder they go to monitored so that the documents are indexed and enter the workflow.

2. Underwriters check each application: While initially processing loan applications, the automatic indexing feature could sort the loans based on any predetermined criteria. The workflow could branch to accommodate this information. Then, your underwriters can be automatically notified when a new application has come to them.

3. Approval: The underwriters can review the loan application, involving as many colleagues in the process as you need to. The stakeholders can literally sign off on the loan either with a custom eSignature or a digital signature through DocuSign.

4. Next steps: The final step in the workflow could be to send the approved loan and accompanying information to the borrower via a secure link. They will have access to the document but not the system.

Benefits of Loan Origination Software

• Customer relations – Your borrowers will appreciate an easy application experience and fast turnaround on their loan.

• Productivity – Get more done with less. Automate anything that takes up too much time or doesn’t need to be done from scratch every time.

• Reduce human error – When data is being entered and indexed automatically and sent along the process according to a preset sequence, less errors occur and less pieces get lost in the cracks.

• Follow regulations – Hand-in-hand with reducing human error is reducing the personnel cost of following regulations and the cost in fines when something has been overlooked.

• Bottom Line – You’re thinking about the cost and the price, of course. The bottom line is that loan origination software will save you time, increase productivity, avoid risk, and allow your business to grow. All of these lead to lower costs and higher revenue.

What's next for loan origination software?

By automating workflows and empowering both borrowers and underwriters, we can actually bring people together more quickly and easily. AI may be a future consideration for underwriting automation, but for now the current state of the art is automatic indexing and digital processing. This is the best way to keep business flowing and ensure seamless partnership.