The credit origination process is the first stage of lending and financial services. The most crucial and significant phase of full loan servicing With design and delivery components that put customers’ expectations first, the finance industry is now refocusing on customer engagement and satisfaction. Each form of loan will have a unique approval procedure, which may be human or automatic. The management of the entire process, from pre-qualification through funding approval, falls under the purview of the credit origination solutions.
What is Credit Origination Solution
Simply put, a Mortgage Loan Origination System (LOS) is a system that takes a completed loan application and oversees the loan transaction from beginning to end. LOS systems may incorporate components like records management, pricing, compliance tools, and eligibility engines to lower risk and enhance loan production quality. Additionally, it incorporates some other systems during this process, including CRM, POS, document generation, third-party vendors, compliance, etc.
In order to understand LOS in a nutshell, you could state that loan origination is the procedure through which the borrower, who is an individual, applies for a mortgage, and the lender either accepts or denies this application. The entire origination process, from application through finance payout or application rejection, is included.
7 Components of Credit Origination Solutions
1. Process of Pre-Qualification:
The Loan Origination Process begins with this. The prospective borrower will now be given a list of the things they must present to the lender to be approved for a loan. This might comprise:
- Voter identification, AADHAR, and PAN cards are acceptable forms of identification and address verification.
- Information about current employment, including a pay stub,
- Credit history,
- Bank statement, and previous loan statements
2. Request For a Loan:
This comes after the first stage of loan origination solutions. The borrower completes the loan application during this phase. This application may occasionally be sent on paper, however, today’s lenders are moving towards an electronic form, making this stage Paperless. With the help of new technology, applications may now be submitted online or through a mobile app, and the data gathered can be tailored to particular loan products.
3. Processing of Applications:
The credit department receives the application at this point, and the first thing it does is check it for sincerity, accuracy, and completeness. The application will be returned to the borrower or the credit analyst, who will get in touch with the borrower to get the information that is missing if all the mandatory fields are not filled out.
4. Process of Underwriting:
The underwriting procedure starts once an application is fully submitted. The lender now evaluates the application while taking into account some factors, including credit score, and risk score, and many lenders create their own unique scoring criteria that can be specific to their business or industry. The lender can load product-specific underwriting standards into a rule engine.
5. Credit Assessment:
The outcome of the underwriting process will determine whether an application is approved, rejected, or referred back to the originator for more details. In the loan decisioning software, there may be an automated modification in the parameters, such as a smaller loan amount or changing interest rates if certain criteria don’t fit the rule engine specified in the system.
6. Quality Control:
The quality check phase of the loan origination process is crucial for lenders because lending is heavily regulated. The quality control team receives the application and reviews key factors in comparison to internal and external laws and regulations. The application is being reviewed for the last time before financing.
7. Loan Financing:
After the loan agreements are completed, the majority of loans finance quickly. Loans against property, business loans, second mortgage loans, and lines of credit could need more time due to regulatory and legal requirements. LOS can monitor funds and make sure that the appropriate papers are signed before or concurrently with funding.