A guide to leveraging an automated underwriting system
Takeaways
LoanPro's modern lending and credit platform offers pre-built integrations with leading partners who provide best-in-class automated underwriting systems for our 600+ customers. The value of leveraging this automated underwriting software is clear and outlined below.
- Automated underwriting is no longer optional; it is a necessity for scalability, reducing human error, and achieving substantial ROI.
- Underwriting process automation significantly enhances the speed and accuracy of automated loan approval, a critical factor in today's competitive environment.
- Lenders should implement underwriting automation in phases, focusing on areas like document management, communication, and automated loan decisioning.
- Top lenders report dramatic results, including a 70% reduction in time and a 40% decrease in costs after shifting to an automated underwriting system.
Why manual underwriting is so costly
In modern lending, the transition from traditional, manual methods to an automated loan system isn’t just a matter of convenience; it’s becoming a necessity for scalability and efficiency. Many lenders still grapple with manual underwriting and loan approval, a painstaking process fraught with delays and inefficiencies that often require sifting through pay stubs and employment history manually. A recent poll by Moody Analytics highlights this pain point vividly: 56% of financial institutions reported that manual data collection and the ensuing back-and-forth with borrowers represents their biggest challenge in initiating the loan process.
These manual underwriting processes aren’t just slow. They’re also prone to human errors and scalability issues. As fintechs and financial institutions strive to expand their portfolios, they quickly hit an operational ceiling. Manual methods simply cannot keep up with increased demand without corresponding increases in errors and operational costs, preventing the necessary automated loan processing required to compete.
Modernizing loan underwriting isn’t just an upgrade; it’s a fundamental rethinking of old processes to meet new demands. An underwriting platform holds the key to solving these issues, providing a seamless, scalable, and more accurate process essential for successful loan automation.
Strategies for underwriting process automation
Incorporating underwriting automation can take many forms, depending on the specific needs and readiness of your lending business. A great place to start is by evaluating your current lending processes to identify the most significant bottlenecks and areas with the highest potential for immediate impact. Once you know where to begin, you can strategically implement an automated underwriting system in manageable phases, starting perhaps with the automation of basic loan application information.
To aid your evaluation, here are three core areas where underwriting process automation can significantly enhance your operation, driving you toward an automated loan approval system:
Document digitization and intelligent processing
Automated electronic document management systems
Implement robust automated loan processing systems to streamline the collection of essential data, such as income verification, bank statements, and personal ID. This dramatically reduces manual processing time, decreasing human error and improving efficiency.
Intelligent Document Processing (IDP)
Deploy an IDP system that uses advanced artificial intelligence to extract, validate, and classify financial data, accelerating the document verification process. This automation is crucial in handling the applicant’s financial history and other required documentation for loans, ensuring compliance with regulatory requirements and enhancing the overall customer experience.
Workflow automation and accelerated decisioning
Robotic Process Automation (RPA)
Use RPA to automate repetitive tasks within your credit underwriting process, such as data entry for loan applications and compliance checks. This reduces manual effort, error, and ensures a smoother, faster path to automated underwriting approval.
Automated communications tools
Integrate tools that update customers in real-time about their loan applications’ status via various contact methods, significantly improving your customer experience by keeping potential borrowers informed throughout the loan process.
Automated credit application processing system
Deploy an automated credit application processing system to rapidly and compliantly move applications from submission to underwriting completion.
Advanced risk assessment and automated decisioning
Predictive analytics and machine learning
Employ machine learning algorithms to analyze historical data and predict the borrower’s risk level, helping you make more informed lending decisions. This advanced risk assessment process is essential for financial institutions to manage their portfolios effectively and reduce costs associated with bad loans. An automated underwriting system can quickly pay for itself if that improved accuracy lowers your default rate.
Automated credit decisioning
Use AI algorithms for automated credit decisioning, allowing lenders to quickly assess a potential borrower’s credit scores, debt-to-income ratios, and employment history. This process ensures faster and more accurate credit assessments, automatically approving loans based on set criteria, and thus reducing the reliance on human underwriters for such decisions.
Targeted systems
This approach is vital for automated underwriting systems for business loans and specialized lending, where risk factors are highly customized.
By understanding the best starting point and focusing on these key areas, you can gradually integrate automation into your operations. This incremental approach not only minimizes disruption but also allows for continuous improvement and adaptation as you learn from each phase of implementation. With the right strategy, automation can power new levels of efficiency, accuracy, and customer satisfaction in your loan underwriting processes.
Achieving ROI with an automated underwriting platform
Lenders who have moved to a modern loan underwriting system report significant improvements in speed and accuracy of their processes. For instance, a customer of LoanPro was able to cut their average underwriting time by 70% while also reducing processing costs by 40% by implementing an automation software.
While the advantages are clear, it is crucial to choose a partner that ensures data integrity and regulatory adherence. The best solutions, like those integrated through the LoanPro platform, are not only effective but also compliant with the latest regulations, providing the necessary guardrails for automated underwriting approval.
When choosing a credit underwriting software, focus on a platform that offers the necessary APIs for underwriting integration and a real-time ledger to maintain data accuracy. For lenders moving toward automated underwriting, start by assessing available technologies, setting clear goals, identifying process bottlenecks, and selecting a reliable technology partner.
The future of lending and credit is automated
The potential ROI from implementing an automated underwriting system is clear—improved operational efficiency, increased customer satisfaction, and the ability to grow and scale more effectively.
As the financial industry continues to evolve, the shift towards automated loan underwriting is not just beneficial but inevitable. Lenders ready to make this move should choose a modern loan origination platform like LoanPro that acts as the core, connecting you seamlessly with the best automated underwriting systems on the market, such as Oscilar, GDS Link, Anovaa, Amount.
Want to see how it all comes together? Download our one-pager on LoanPro's decisioning engine to see how we integrate automated underwriting, AI-powered credit models, fraud detection, and compliance automation into a single origination flow.
The future of lending is automated, and the time to start transitioning is now.
