Manual handling of loan origination processes consumes precious time, effort, and capital. Not only is it inefficient and error-prone, it frustrates today’s digital-savvy borrowers. As a result, lenders waste time troubleshooting and fixing mistakes, instead of improving the customer experience and growing the business. Lenders who want to expand their sales channels, reduce operational costs, and increase loan volumes can reduce manual underwriting tasks by 80%1 with Straight-Through Processing (STP). While commercial lenders may want to retain human servicing in some cases, consumer loan and securities transactions are ideal candidates for STP automation with little/no manual intervention.
How STP can provide a significant competitive advantage
In a crowded field of digital startups, traditional lenders who automate the loan process will be better able to capture millennial mindshare. Given the endless documentation requirements and underwriting complexities involved in loan origination, Straight-Through Processing offers a path to greatly reducing document submission, credit approval and data entry time and effort. With standardized parameters and rules that are automatically entered into the system and cross-checked by third-party services, STP can automate most loan processing tasks, freeing staff to handle more applications and focus on accounts that call for more nuanced consideration.
The key benefits of rule-based STP automation:
1. Faster transaction processing times:
When lenders don’t have to manually compare data across numerous documents for missing or incorrect information, they can process transactions faster and close sooner.
2. Shorter borrower payment cycles:
By digitizing paperwork and automating other manual tasks, STP can help lenders reduce payment cycles and collection costs and increase profit margins.
3. Better visibility and control:
Because every activity in the consumer loan origination process is rules-driven and standardized, lenders can predict and control the timing of each transaction, while gaining increased visibility into cash flows.
4. Reduced errors and risks:
Mature STP solutions can access Big Data across industries, consumer demographics and from banking transaction databases, (thanks to Dodd-Frank), as well as e-commerce to regional economic data. Based on the comprehensive data, robust rules and algorithms in leading STP solutions, lenders can confidently make decisions on a given set of constraints – thus reducing errors and risk.
5. Enhanced productivity:
When lenders aren’t wasting time manually entering data or verifying details, productivity and job satisfaction increases. They can spend more time on critical tasks, like nurturing customer relationships and growing the business.
6 STP Best Practices for Loan Origination Process
With increased competition and more lenient credit approval practices come increased risk. To make credit decisions that balance risk and reward, a proven STP solution or platform can help manage most of these risks, while also delivering a range of benefits. Here are 6 best practices to embrace while adopting STP in your loan origination process:
1. Choose a solution that fits:
One of the first steps you should take to enable STP is choosing a solution that not only has been developed and maintained by expert solution architects but is also tailored to align with and support your operating model, technologies, services portfolio, regulatory requirements, and customer expectations. A robust STP solution or unified platform can not only help speed time to close, it can also provide a holistic view of your lending processes and status, while ensuring you’re leveraging the most advanced features and functionality available for your unique business needs.
2. Automate key tasks:
As you rollout your STP strategy, it may be beneficial to automate low-hanging fruit like data entry and verification tasks to improve the accuracy and volume of loans analyzed, approved, and processed, as well as to impress borrowers with fast, evidence-based lending decisions.
3. Assess serviceability:
Opting for a solution with a built-in servicing and capacity calculator can allow you to define how exactly you want to configure rules and make decisions across the origination lifecycle, while eliminating clearly unqualified applicants before they enter the system.
4. Enable seamless integration with existing applications:
The successful implementation of STP is possible only when the STP solution fits seamlessly into the current application ecosystem. Incompatible systems can cause unnecessary conflicts and delays in processing and sharing information. When your Straight-Through Processing product and host infrastructure are compatible, STP can more easily adapt to change as new information and opportunities emerge.
5. Ensure periodic reporting:
STP, although a great way to enhance the accuracy and timeliness of the lending process, is not a magic wand that can overcome every challenge. The implementation takes time and effort and requires constant monitoring and modification. To ensure you are driving efforts in the right direction, it is important to carry out regular testing for accuracy, security, and process issues that increase the likelihood of data entry errors.
6. Constantly communicate with stakeholders:
The number of stakeholders that are part of any loan origination process remains can reach hundreds. Therefore, while enabling STP, it is critical to communicate with stakeholders on a regular basis to manage expectations, educate users, and maintain trust in the new system.
The risks and challenges integral to the loan origination process cannot be overcome simply by implementing STP. However, through continuous testing and strategic process automation, STP can minimize operational costs and error rates, increase loan processing speeds, and boost productivity across the business. But perhaps most importantly, your customers will love it.
Find answers for your queries on STP, connect with our Digital Mortgage Experts, write to PE@xoriant.com