Loan underwriting is the process of analyzing loan applications and coming to a decision on whether to accept or not. Although this sounds easy on the surface, there is much to it than meets the eye. There are countless parts of a credit report that need to be picked apart; the history of an applicant isn’t enough alone to make the decision. There are many different ways to carry out underwriting services, but the essence of each is analyzing borrower information. This article will explore underwriting in more detail and explain how technology can help.
Manual underwriting is the traditional practice used before automation took over the field. Lender personnel can ask questions about credit scores easily, but they often miss vital information. Further, applications can easily be missed by a manual process, which has a negative impact on the lender. Also, the time taken to complete underwriting services manually is long, meaning applications are sitting waiting, which can cause friction between borrowers and lenders.
Typically, the guidelines for underwriting are conventional, which means that everyone is reading from the same book. Carrying out manual underwriting means following the rules to the letter, in a robotic format, which can lead to potentially good borrowers being turned down – automated underwriting accounts for flexibility by analyzing much deeper.
Many loan providers use automated underwriting software to get the job done much more efficiently and in a timely manner. The software takes available information on an applicant and works out a score based on a given algorithm. The first part of this process lets lenders see the pre-qualification score of a borrower. Secondly, the software carries out a deeper assessment that works to verify information from the first run.
The score calculated by the second assessment lets lenders see a “risk” score – a metric taken into account on any loan. Results from these checks are transferred to lenders through a secure network, after which a lender will manually analyze the information to make a decision. Alongside the scores from the software, any documentation is examined to check for inconsistencies. Anything suspected to be fraudulent is reported.
Benefits of Automated Underwriting
Automated underwriting software eliminates the opportunity for human error and makes sure that applications are processed objectively. The pre-qualification process is extremely fast and helps borrowers understand their chance of being accepted, which lets them decide on their actions to take. Having a hard search carried out impacts the credit score, whereas the soft preliminary search doesn’t. Further, by automating the underwriting software, applications are processed much quicker, which means staff has more time to focus on important tasks including new client meetings, marketing, and extra projects.
Underwriting is the process of assessing borrowers’ information and deciding whether they can have a loan. There are a lot of components involved in underwriting, and the manual process is prone to errors. Fortunately, thanks to developments in technology, there is software available to automate the process and smooth out lender operations.