Loan Processing 101: The Basics and Best Loan Processing Tools

Few business processes are as burdensome as loan processing.

The way that most loans are processed is costly, time-consuming, error-prone, and labor-intensive.

Making matters worse, it’s not uncommon for organizations to process huge volumes of loans.

Disrupted ‘digital born’ competitors are raising the stakes for lenders to streamline the process.  Delays or other issues in the loan approval process can have an applicant looking for the door.

Automation enables organizations to digitize and simplify loan processing end-to-end.

This article details the basics of loan processing.

What is loan processing?

Loan processing is a big job, encompassing all the steps required to get a loan ready for underwriting.  Together, loan processing accounts for most of the manpower required to produce a loan, studies say.

Business and consumer loans may be processed by banks or other lenders and third-party processes.

For organizations that rely on manual and semi-automated processes, the biggest challenges are:

• High costs
• Long cycle times
• Inadequate visibility
• Compliance risks
• Poor customer experience

These are some of the reasons that organizations are embracing loan processing automation.

How does loan processing work?

While the loan process may vary between organizations, it typically involves several key steps:

• Creation of the loan file. The starting point for the loan approval process, the loan file includes the loan application, any notes made during the loan interview process, and the comments of those who reviewed the loan.  The information in the loan file is entered into a loan processing system that manages the steps that need to be completed and their deadlines.
• Review of the applicant’s credit report. A credit report is key to evaluating an applicant’s loan worthiness.  In some cases, a loan officer may pull a prospective borrower’s credit report as part of the loan application process.  Regardless, an applicant must consent to have their credit report run.  The credit report is attached to the loan file and electronically archived.
• Verification of title records. The next step in the loan process is to determine whether there is a lien on the automobile, motorcycle, boat, or home that the applicant wants to purchase.
• Verification of employment, income, and assets. Verifying the employment information, income, and assets listed by a borrower is critical to the loan approval process.  Some lenders require a letter from the application’s employer verifying their employment.  Other lenders only require paystubs, W-2 forms, or verbal verification over the telephone.  Verification of employment, income, and assets must be recorded in the loan processing software.
• Appraisals, verification of insurance, and inspections. Although the requirements will vary by the state or local entity governing a loan, lenders must ensure that a home or asset is appraised, inspected, and insured and that there are no issues that run afoul of government laws.
• Review of the loan file. Once the credit reports and other details required for a loan have been collected, the loan file is reviewed for mistakes, oversights, or confusing information.  Additionally, any red flags in the loan file are typically highlighted for underwriters.
• Certification and delivery of the loan file. After the review of the loan file is complete, the loan package is finalized and delivered to the lender, underwriter, or manager for review.

Clearly, loan processing requires the collection, review, management, and export of lots of information.  Automation can digitize and simplify the entire loan process, beginning from data collection.

• Input. Loan applications and other information can be input from scanners, email attachments, mobile devices, faxes, image repositories, and stored information.
• Classification. Once information is input, loan processing solutions classify and understand documents using context and unique words, titles, anchors, values, patterns, and barcodes.
• Extract. Information from submitted documents is extracted using technologies such as freeform unstructured extraction, barcode extraction, handwriting extraction, mark sense extraction, fuzzy database extraction, PDF and text extraction, and fixed-form extraction.
• Deliver. Information is delivered to downstream systems and processes in any format, including XML, PDF, CSV, JSON, or document repositories.  Application Programming Interfaces (APIs) also can be used for better two-way integration into any business system.

Automating each of these steps ensures that loan information always is available and accurate.

Tools for loan processing

Modern loan processing solutions combine a wide range of tools and technology.

• Visual and content-based classification accurately identifies documents.
• Artificial intelligence (AI) and supervised machine learning intelligently classify and extracts metadata from structured and unstructured forms.
• Smart scanning sorting software reads information on any document type from any source.
• Robotic Process Automation (RPA) connects systems and processes without programming.
• Browser accessibility eliminates the need to install and maintain software on each PC.
• Real-time reports provide instant performance monitoring and rich statistical data.

These tools and technologies help banks, lenders, and servicers digitize and simplify loan processing.

Make loan processing hassle free

Automating loan processing provides big benefits to banks and servicers.

• Faster cycle times. “Time is money,” the old saying goes.  This is especially true in loan processing where small delays can impact the customer experience.  Automation eliminates data entry, handoffs, and other manual tasks that slow down loan origination and closing.  From data collection through application processing, automation helps ensure a fast, frictionless process for customers, paving the way for a successful long-term relationship.
• Reduced costs. Manual tasks are a big driver of back-office costs.  Modern loan processing solutions eliminate costly manual tasks such as keying application data.  And automation enables a lender or servicer to scale their operations, without the need for additional staff.
• Enhanced customer experience. Fast and efficient loan processing can make or break a customer relationship.  Modern loan processing solutions reduce the need for follow-up calls and emails to collect data, improve customer engagement through proactive omnichannel communications, and help ensure that erroneous information doesn’t slip through the cracks.  Customers also can submit documents using any channel or format that they prefer.  And signatures can be collected digitally, avoiding the need for customers to come into an office.
• Improved staff efficiency. Automation virtually eliminates manual, repetitive tasks such as keying application data, shuffling paper and emails, chasing down information, and fixing errors and mistakes.  In an automated loan processing environment, staff has more time to focus on higher-value activities such as analyzing data and building customer relationships.
• Better system connectivity. Most loan processors rely on a hodgepodge of point solutions and closed-loop networks, each with their own logins and passwords, file formats, account requirements, and proprietary integrations.  Modern loan processing solutions use Robotic Process Automation (RPA) and pre-built integrations to seamlessly connect loan origination platforms and other downstream systems and processes, without the need for programming.
• Streamlined compliance and security. Modern loan processing solutions safeguard sensitive data through user- and roles-based permissions, a chain of custody assurance, automated enforcement of separation of duties, and tracking of all actions taken on a loan.  Eliminating paper also reduces the possibility of documents falling into the wrong hands.

The benefits provided by automation are what loan processors need in uncertain times like these.

Why automate loan processing

Now is the time to rethink outdated loan processing workflows and their underlying cost structure.  Disruptive ‘digital born’ competitors offer an electronic process that is fast, frictionless, and transparent.  By modernizing loan processing, banks, lenders, and servicers can achieve operational improvements and deliver an enhanced experience to their consumers and business customers.

To get started on your journey to automating loan processing, schedule some time with one of our expert consultants.