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Understanding the options available to your financial institution in the loan applications and origination markets is critical to the long-term success of your lending program, but at times can be confusing due to the large array of services being offered. When evaluating lending systems, it is critical to understand not only the services being offered, but to know how that product will integrate into your institution’s current environment. Understanding your lending system begins with having a clear definition of the roles of the loan applications system, the loan origination system, and the core data processing system. Loan Applications A loan applications system handles the acquisition of applicant data. Most loan applications systems also score the loan application and make a recommendation to approve, refer, or deny the loan based on the scoring results. Standard capabilities found within most loan applications systems include gathering all of the information about the loan and the applicant, retrieving information from one or more credit bureaus, scoring the application or using a score returned by a credit bureau, and making a recommendation about the disposition of the application (approve, refer, deny). Some loan applications systems have advanced functionality that allows them to deliver a higher level of service to members. Capabilities often found within more advanced applications systems are an interface to the financial institution’s core processor; support of web-based and/or phone interfaces that allow members to directly input an application, responding to online applications with a nearly immediate decision; and support of indirect lending interfaces that allow a third-party to input an application on behalf of a member, receiving a nearly immediate decision. After the loan applications system has acquired the data, the loan origination system handles the loan through to the booking stage. Many origination systems include a loan applications system as an integral part of their product in order to offer more comprehensive service offerings. Most loan origination systems do everything that a loan applications system does or they interface to one. Standard features in most systems allow personnel to “work the application” using the origination system; print any necessary forms, disclosures, letters, notices, or documentation; transmit all necessary data to the core processor; and serve as the database of record for all application data. The database contains information needed for historical records and for proof of compliance with laws and regulations. An advanced feature that is often included in or available for loan origination systems is the ability to receive faxed documentation directly into an imaging system. Document imaging, including the scanning of titles, utility bills, and pay stubs, is another advanced feature that some origination systems contain. Core Processing After the application data has been acquired and the loan has been booked, the core processing system handles the servicing of a loan. Capabilities performed by the core processing system include disbursing funds from the loan; collecting payments; tracking payments, interest, and fees; reporting loan status to the credit bureaus; and preparing statement data for printing. The core processing system is a key element within the lending process because it stores the primary member data and tracks the loan throughout its life. Early communication with core processors regarding the selection of third-party applications and originations systems helps to ensure that interface options meet desired outcomes. There are three key features that differentiate a loan applications system from a loan origination system. First, loan applications systems do not serve as the database of record for application data. Loan applications systems are designed to forward the loan application to a loan origination system for further processing and storage after a recommendation has been made about the disposition of the loan. Second, loan applications systems do not typically print necessary forms, disclosures, letters, notices, or documentation. Finally, loan applications systems do not generally have an interface that can send all of the data necessary to book and service a loan to a core processing system. A financial institution may have several loan applications systems, but will typically have only one loan origination system. For example, one applications system might be used for front line staff members and another for accepting member applications on the Internet. A third system could be used for indirect lending or a service bureau lending call center. There are also products available that take applications through multiple channels, eliminating the need for multiple loan applications systems. The key to delivering a working loans system is making sure that all of the pieces are in place before the project begins. If a loan applications vendor and a core processor are the only pieces in place, your loan department will have to process the loans by hand. For institutions that process five loans a week, this may be a good solution, but for institutions that handle 500 loans a week, processing them by hand is not an effective option. Determining the needs of your financial institution and evaluating lending services that fit well within your current environment are critical steps that will lead to the successful launch of a new, full processing lending solution.

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