What exactly defines a loan origination system?

In simple words, the loan origination system is responsible for handling and managing all the stages right from pre-qualification to approval of funding of the loan. It is essential to understand that for almost every lender, the definition of a loan origination system is different. All the lenders are free to choose the type of origination process which suits their criteria; therefore, it is they who decide how it starts, several stages involved with the process, and where it ends. 

Below mentioned are the different stages involved in a basic loan origination system:

1. Pre-qualification process:

This is the initial stage from where the entire process is commenced. The prospective borrower will be given a list that will state the required documents (proofs) which they have to submit to initiate the application for the loan. These documents must be submitted by the borrower to the lender. This list may include:

• ID proof/ Address Proof
• Current employment information
• Credit score
• Bank Statement or it may consist of a previous loan statement

2. Loan application process:

After the submission of documents, as mentioned above, comes the second stage of the loan origination process. In this one the borrower completes the loan application, previously there used to be paperwork, but almost all the lenders have shifted towards the electronic version which makes the entire process go paperless. The updated versions make the process accessible in a digital manner via websites and mobile applications. 

3. Application processing:

Now that the borrower has submitted the documents, the application is received by the credit department. The job of the credit department is to review the loan application to check it for accuracy, genuine, and completeness. During this stage, if there is a case in which the loan assessment authority finds out that the mandatory fields are not completed they are given full power to return the application to the credit analyst or the borrower himself so that he can fulfill the required fields. 

Commercial companies who are dependent on the Loan Management System are known to use the Loan Origination System (LOS) to understand the creditworthiness of the borrowers. A further process of the loan shall proceed when the lender sees a good LOS. 

4. Underwriting Process:

This stage only comes after the application process is totally completed. In this stage, the lender checks various things like credit scores, risk scores. Moreover, many lenders have their own criteria which they use for scoring in their own unique way. In addition to the same with the latest upgrades, this process is fully automated with the help of a rule engine and API Integrations with credit score integration such as CIBIL, EXPERIAN, etc. 

5. Credit Decision:

Based on the results from the underwriting process, an application shall be either approved or denied. There are scenarios where it is also sent back to the originator for additional information. As per the information in the system if there is a mismatch in the criteria it may lead to an automatic change in the parameters. 

6. Quality Check:

This is the last stage before the application is sent further for funding. This stage is the most important one in the process; the application is sent to the quality control team for auditing to analyze in certain aspects considering internal and external rules and regulations.

7. Loan Funding:

At this last stage, the funding process starts after the official documents are signed.