For retail banks, an effective loan origination and servicing operation is a key contributor to long-term profitability. Under pressure from today’s economic and regulatory environment, lenders need new and smarter ways to cut costs and increase productivity, while at the same time improving borrower satisfaction and ensuring regulatory compliance.
The loan processing lifecycle typically comprises many different tasks: loan document review, loan operations, quality assurance, closed loan processing and loan servicing, all of which are inherently document-intensive. Moreover, many documents, such as loan applications, credit reports, and tax bills, still arrive on paper. As lenders continue to struggle to capture, index, and store that paper, inadequate and outdated lending processes invite opportunities for errors and compliance issues, which also creates additional costs and risks when it becomes necessary to find these documents to satisfy business or regulatory requirements.
Lenders have responded to the changing regulatory environment by instituting more audits and internal controls. Unfortunately, auditors are often forced to manually search paper and electronic files to locate documents. This in turn delays verification of compliance with agencies such as the FDIC, which causes further deterioration in servicing margins.
Manual processes have also impeded efficiency gains. Loan operational managers lack effective tools to monitor productivity and manage workloads. Managers often manually distribute work to loan processors and servicing agents, and then struggle to redistribute work when volumes increase or problems arise. Because reporting typically consists of manually populated spreadsheets, managers also lack the real-time visibility necessary to improve processes and track productivity.
Loan processor training has been a persistent challenge in the lending industry. To effectively handle the growing number of exception processes, lending agents must possess more advanced skills and have appropriate access to the information they need to make good decisions. Manual processes have been an obstacle to improved training, preventing much needed increases in productivity.
Many basic back office functions of the lending lifecycle have already been fully mined for cost reductions and efficiency gains. Therefore, lenders must focus on the aspects of the business that still have room for improvement: operations, document management, borrower communications, and compliance.
Operations: Loan processing encompasses an array of functions, from generating simple statements to working directly with borrowers to resolve complex problems on the servicing side and loan application processing to disbursal of funds on the origination side. Many of these operations are still plagued by manual processes and paper files. Eliminating these bottlenecks is critical to process improvement. An effective loan processing solution should automatically route loan files for review and approval, as well as integrate seamlessly with other systems.
Document Management: Lenders deal with an untold variety of documents every day, from structured escrow statements and late payment notifications to unstructured content, such as faxes and emails. In a document-intensive business, mistakes can have dire consequences. Lost, missing, and incomplete documents, along with insufficient record-keeping can lead to fines and legal actions that can destroy reputations and shut down operations. A loan processing solution should provide a central repository for all documents, so that information is immediately accessible when required.
Borrower Communications. Correspondence with borrowers is perhaps the most critical component of a loan processing operation. Both revenue generation and regulatory compliance are dependent upon these communications. A loan processing solution should manage and generate timely, relevant, and personalized correspondence – delivered via the borrowers’ preferred channels. By improving communications, lenders can enhance borrower loyalty, speed time-to-revenue and avoid regulatory disclosure violations.
Regulatory Compliance. The housing market collapse started a new era of industry regulations and penalties. Lenders need to tighten oversight of documents, communications, and processes to meet stringent new rules. A loan processing solution should enable quality assurance audits and comprehensive reporting, as well as automate retention, archiving and storage. In a constantly evolving regulatory environment, lenders must be prepared to modify processes without costly delays.
Mr. Puccinelli is a director, global financial services, Information Intelligence Group, with Hopkinton, Mass.-based EMC Corp. He can be reached at Robert.Puccinelli@emc.com.
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