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Why digitized portfolios give lenders a competitive advantage

Jul 23, 2018 / Consumer Banking

No matter the business, digitization holds the key that unlocks groundbreaking opportunities and prevents small issues from blowing up into multi-billion or even trillion-dollar problems. The ability to access the right data at the right time not only provides a benchmark for a company’s past performances—it also creates a roadmap to future industry trends.

Access to accurate, real-time data proves particularly crucial for financial institutions because it provides them with complete reporting capabilities and vital portfolio insights. But not all industry portfolios are digitized and this presents a significant challenge when financial institutions review comprehensive portfolio data.

Consider the construction industry, which because of its lack of digitization stands as one of the riskiest loan categories within a bank’s portfolio: historically confined to spreadsheets and paper files. No wonder, then, that industry decisions have been made with outdated information—and in some cases, by instinct alone. The amount of data available today leads financial experts to wonder: Why can’t all portfolio decisions be data-driven?

In terms of financial security, history itself advocates for the transition towards digitized portfolios. During the global financial crisis, the International Monetary Fund estimated that banks and other financial institutions faced aggregate losses of $4.05 trillion, $2.7 trillion of which came from loans and assets originating in the United States, according to The New York Times.

Additional news outlets, including the Wall Street Journal, have reported total global losses as large as $15 trillion from the crisis. Imagine the potential economical outcome if, back then, financial institutions had timely access to critical data insights—even for just a fraction of the losses.

Traditionally, the construction lending process requires a loan administrator to gather data and paper files when they assemble reports. This manual, time-consuming process can cost credit departments days, or even weeks, of invaluable time. It can also drive financial institutions to disregard comprehensive portfolio reviews unless deemed absolutely necessary.

What’s more, human errors occur daily in spreadsheet reporting. A financial institution’s lack of oversight to this degree, however, leaves lenders susceptible to compliance issues and unexpected risk—all of which they avoid with proper reporting and analytics platforms.

Unexpected risk leads lenders and credit management departments to avoid construction loans. Earning potential aside, construction portfolios are known to garner unwanted attention from regulatory agencies to ensure proper risk management.

With proper lending software, however, financial institutions have the ability to leverage the ever-expanding construction market without facing additional risk. Digitization creates a successful, two-fold approach as it provides financial institutions with reporting capabilities and portfolio insights. It also allows lenders to readily access complete reports about an array of issues that include rate and fee variances, inactive or stale loan accounts, matured loans, liens and insurance lapses.

Given the complex nature of the construction lending industry, lenders must quickly identify potential issues and reduce inherent risks: a job they cannot complete without up-to-date, readily available reporting and portfolio insights.  

Lending technology is needed now more than ever in the housing market, especially during a time marked by high demands and limited inventory. Not only have these factors continued throughout 2018’s housing shortage, but industry experts also predict a 9 percent increase in first-time home buyers this year. A swell that significant—especially given the present housing shortages—would generate immense growth in the construction industry.

For financial institutions, increased growth will inevitably result in closer examinations of their construction portfolios in order to ensure regulatory compliance. For those institutions that are digitized, automation software can assist in better preparation for compliance exams with easily accessible reports that provide examiners the required information without interrupting the credit management department’s workflow.

Construction lending is a complex, multi-step system, especially when it comes to proper portfolio management. Digitization simplifies and streamlines the process as it enables financial institutions to quickly gather both global and granular reports across an entire construction portfolio. Once completed, these high-caliber reports allow lenders to create and apply insightful metrics to performance tracking, accounting strategies and strategic planning. The process results in smarter, data-driven decisions and the elimination of failed tactics, literally giving banks something constructive to build on.

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Scott McCarthy is the vice president of sales at Nashville-based Built Technologies, leading Built’s sales organization in support of growing demand for its lending software.

For more articles like this, check out our recent Executive Report: “New trends in lending and mortgage.”

With the right information delivered to the right people, you and your team members will learn more efficiently. That’s why BAI compliance experts, including former examiners, have designed the BAI Mortgage Series specifically around the needs of lenders.