Enterprise Loan Originations: Can They Boldly Go Where No LOS Has Gone Before?

Article excerpt

In the early part of the decade, extremely favorable market conditions--including the lowest interest rates in decades, increasing home values and consumers' healthy appetite for credit--led to the doubling of retail credit balances from 2000 to 2005. Today, with interest rates on the rise and loan application and consumer spending down from the early years of the decade, financial services institutions are battling for market share and volume.

Through all this, the underlying challenges and objectives financial services institutions face today in consumer loan originations are not fundamentally different from that of 10 years ago. Institutions desire quicker speed to market with competitive new products, less manual processing, consistent credit decisions, the ability to cross-sell additional products to customers and deeper relationships with customers, to name just a few. The difference today is that loan origination system (LOS) providers are now able to offer the technology solutions that institutions need to accomplish these business objectives.

A major theme in response to these objectives is the need for a holistic view of the customer. From an originations perspective, this requires the ability to easily take information from one loan application and make best-fit and multiple-product offers. Core lending systems transformations, back-office consolidation and automated workflows represent some of the technology initiatives correlating with the strategic responses necessary to face these business issues head-on.

Loan origination systems for single lines of business

Today lenders typically have an origination system and related systems for each product type. This includes all of the point-of-sale (POS) platforms (e.g., retail/branch, third parties such as mortgage brokers, telephone banking, telemarketing, direct mail, proprietary Web sites, loan aggregators), a product-specific LOS, an automated underwriting or decision engine to analyze the data and a pricing engine (which may be part of the decision engine or a separate system).

The LOSes have numerous interfaces with third-party services (such as credit bureaus, appraisal, title, flood insurance and other vendors), and document systems to draw up legal and compliance documents, letters to communicate the decision to the customer and numerous other interfaces for loan boarding, loan funding, accounting, audit and tracking purposes.

While most financial institutions have a unique LOS and related subsystems mentioned here for each product type--mortgage, home-equity, auto, credit-card, student loans and others--larger institutions may have three or more LOSes and related processes for just one product type, depending on the channel of entry or as a result of recent mergers and acquisitions.

A financial services institution installing product enhancements or a new product introduction may have to update 70 or more systems and interfaces. Multiply this by the number of product types an institution offers (mortgage, home equity, auto, personal or student loans), and keeping these systems running smoothly becomes a monstrous task. Little time is left to ensure that every loan application is matched with the product that best suits the applicant's needs and circumstances, that enhances cross-sell ratios and consistently applies the institution's credit policy--and does all this in a timely, cost-effective, compliant manner.

Enter the enterprise LOS

The fundamental concept of enterprise originations is to utilize one highly flexible and configurable system, driven by business users, to originate multiple types of consumer and mortgage loan products. During the loan-application process, lenders collect more data about customers and prospects than they are ever likely to collect from a deposit product or by any other means available. By breaking down the product silos to use this information for additional product offerings or appropriate product fit, the institution can now fulfill many of the long-term goals mentioned earlier. …