Loan Zone: A Performance-Driven Approach to Origination System Selections

a business executive looks at a process flow chart on a glass wall
By Daryl Jones

4 minutes

Top lenders are not always on a ‘top’ LOS, but they are fanatical about managing their processes and pursuing an excellent member experience.

All too often, credit unions implement a new loan origination system in the hope that updated technology will solve their existing functionality problems. And all too often, they soon realize that a magical approach to performance improvement doesn’t exist. 

In Cornerstone Advisors’ work with credit unions across the country, we have repeatedly seen technology blamed for a CU’s dissatisfaction with its loan origination performance. Sure, it’s easy to point a finger at the system for poor performance but, in reality, improved performance comes not from changes in the technology but from consistently managing, measuring and implementing changes in the processes. 

Credit union lenders who want to get the best results from their loan origination systems must fully commit to the initiative and be prepared to devote time and effort not just on the front end, with the system selection, but during the implementation and in the utilization of the solution. 

A focus on these four key areas will help:

1. Set Performance Targets 

According to the Cornerstone Performance Report for Credit Unions, key mortgage lending productivity metrics have declined over the past three years, with dips in the latest study of 15%-20% across all roles, including loan officers, processors, underwriters and closers. Lenders heading into an LOS selection need to offset this downward spiral by effectively articulating their future-state performance targets. For example, lenders should target, at a high level, 30-plus or 3-plus closed loans per month per direct consumer lending full-time equivalent and mortgage lending FTE, respectively.  

The impact of the new technology on production capacity and/or staff should be clearly defined during the business requirements phase of the project. If it isn’t, lenders are likely to experience system dissatisfaction 12-18 months post-implementation, which in turn will lead to low performance and, quite possibly, another system selection promptly upon contract expiration.  

2. Future-State Process

A common refrain for lenders embarking on a system selection is: “We don’t want to put our current processes into a new system.” So why don’t more credit unions take a proactive approach in designing their anticipated processes? Lenders that adopt the “best practice” workflow proposed by their vendors with the assumption that it won’t replicate what they’re doing today are in for a rude awakening.  
To prevent this outcome, lenders should assign teams to develop a process for all activities, including roles, technology and requirements related to lead generation, online and in-person applications, identity verification, abandoned applications, loan decisioning, adverse actions … the list goes on. The teams’ focus is on eliminating or minimizing manual touchpoints and proactively dictating the overall member experience. 

3. Design for Digital

Digital is a key driver for selecting new LOS technology. In keeping with future-state process design, lenders should have a firm focus on “meeting members where they are” in the lending process. It’s impossible to predict when and where borrowers will want to apply, visit a branch or close a loan, but it is possible to design a process that supports members hopping in and out of any of these experiences.  
A best-practice process design, at a minimum, allows:

  • Branch staff to view and assist a borrower during the online application;
  • Branch and/or loan center staff to retrieve and finish an abandoned online application when a borrower changes channels; and 
  • Closings for both primary and co-borrowers across different channels. 

Solid digital processes should be built on a foundation of electronic document collection and the coaching of borrowers on utilization of such capabilities. In fact, because it creates an immediate change in both the borrower and staff experience, this is typically the first and best area of “efficiency lift” for any lender looking to start the digital lending journey.  

4. Leverage Automation

A new digital process must incorporate as much automation as possible. While most lenders are leveraging integrations and application programming interfaces with third-party systems, credit unions are not as advanced as they could be. There are still a lot of manual steps that cause lenders to leave the LOS to order/retrieve information from a third-party solution, and the process frequently involves numerous steps to save or archive information, compounding the inefficiency.  

Leading lenders evaluate each integration point individually, focusing on automating the interaction and eliminating manual steps. Strong loan origination systems will leverage automated verifications for identity, assets, employment and income as well as provide automated “order outs” to other third-party providers. As technology continues to evolve, lenders will become more comfortable with such automated artificial intelligence capabilities as chatbots and complex automated underwriting decisions.  

High performing lenders are not always on a “best-in-class” LOS, but they are fanatical at managing their processes and ensuring outstanding performance with non-negotiables around an excellent member experience. A performance-driven approach should be embraced by any credit union looking to maximize its LOS selection and implementation project.  

Daryl Jones is a senior director for CUES Supplier member and strategic provider Cornerstone Advisors, Scottsdale, Arizona.

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