What is loan underwriting? Loan underwriting is the process lenders use to verify a potential borrower’s income, assets, debt, and property details to issue final approval for a loan. Loan underwriting can be time-consuming and impact a lender’s business productivity, output, and growth.
To tackle these changes, lenders can hire expert consultants to provide loan underwriting services. Loan underwriting services offer speed and efficiency while providing accurate and reliable data. Employing a loan underwriting services company increases the number of customers to which a lender can service loans at a given time.
Borrowers normally require the funds to complete a business transaction or to meet a financial goal. Until a borrower receives a loan amount, any transaction or goal they wish to complete is left pending, potentially harming the borrower. A faster approval process also leads to greater customer satisfaction and a higher rate of retention.
The Loan Underwriting Process
Loan underwriting services use automation for greater speed and efficiency. Here are the steps taken in an automated loan underwriting process:
· Data Collection: All the necessary information, such as credit score and income, is collected. This data is usually collected electronically.
· Data Pre-processing: Collected data is then formatted and made ready for analysis. Data pre-processing includes fixing cluttered or missing data to make analysis smoother.
· Data Analysis: The applicant’s data is analyzed using Artificial Intelligence (AI) and Machine Learning (ML) algorithms to assess a borrower’s creditworthiness.
· Risk Assessment: These algorithms determine a borrower’s risk level. The algorithms use financial models and search for patterns and indicators of risk to determine a borrower’s risk score.
· Decision-Making: Automated loan underwriting processes possess a decision making-system that approves or denies a loan. The decision-making system uses a borrower’s risk score as the basis for its conclusion.
· Validation: The final step in the loan underwriting process is validation. A borrower’s details, such as income and employment history, are verified. Once the documents are verified, a borrower will know if their loan application has been approved or rejected.
Benefits of Automation in Loan Underwriting
There are many benefits that an automated loan underwriting process offers over a manual one. These are:
Improved Accuracy: A manual loan underwriting process is subject to human error. On the other hand, automated writing systems use algorithms that are more accurate than human judgment. An automated loan underwriting system helps reduce the risk of errors.
Improved Efficiency and Speed: An automated loan underwriting process can process a loan application much faster than manual effort. A faster underwriting process reduces the turnaround period, allowing lenders to review more loan applications.
Increased Compliance: Compliance is the rules and regulations that lenders must adhere to when approving loans. An automated loan underwriting system can help prevent lapses in compliance and save a lender from paying penalties.
Better Risk Management: Due to the speed, efficiency, and accuracy of an automated loan underwriting system, lenders can more easily identify potential defaulters. Lenders are in a position to take fewer risks and gamble when approving loans.
Reduced Costs and Overheads: Acquiring an automated underwriting system and skilled employees to operate the system can be costly and time-consuming. Lenders can sidestep these challenges by employing the skills and expertise of loan underwriting services.
Loan underwriting is the process by which lenders access a potential borrower’s eligibility for a loan. Loan underwriting can be a tedious process that delays the loan approval process. Slow and inefficient loan underwriting processes can cost businesses productivity and reduce customer satisfaction. Lenders can employ loan underwriting services to improve performance, turnaround times, and customer satisfaction.
Loan underwriting services utilize automated processes that can offer a host of benefits to lenders. These benefits include higher speed, better efficiency, more accuracy, less risk and exposure to non-compliance. Further, loan underwriting services offer lenders the chance to receive high-quality results while saving resources and time.