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How to Optimize the Mortgage Loan Origination Process
By Olayemi Jemimah Aransiola
February 01, 2024
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Mortgage loan origination is creating and approving a loan for a home purchase or refinance, and as you may expect, several steps and parties are involved in mortgage loan origination. These parties include the lender, the borrower, the appraiser, the underwriter, and others.  

Interestingly, the mortgage loan origination process can be complex, costly, and time-consuming for lenders and borrowers because of various problems and inefficiencies that affect the loan’s quality, speed, and cost. Hence, lenders must optimize the mortgage loan origination process.

This article will discuss how lenders can optimize the mortgage loan origination process to ensure an easy and streamlined customer experience. At the end of this post, you will gain insight into using the best practices and solutions to improve your loan origination process. Read on!

The Steps Involved In the Mortgage Loan Origination Process

1. Application: After creating unique mortgage loan products for your customers, you begin to anticipate applications because, in a loan origination process, application is the first step. This is where a borrower interested in your loan offering applies with information on their income, debt, and assets. The borrower will also provide information on the property they want to buy or refinance. Typically, lenders in the mortgage loan industry charge an origination fee, usually 0.5% to 1% of the loan amount, to cover the cost of processing the loan application.

2. Appraisal: This is the second step in a mortgage loan origination. To conduct an appraisal, mortgage lenders request an appraiser to appraise the property submitted by the borrower. The appraiser will inspect the property and compare it with similar properties in the area to determine its value. The significance of this procedure is that it helps determine the property’s market value and condition. Once your underwriter has completed this process, the appraisal report will be sent to you and the borrower.

3. Underwriting: During the underwriting procedures, the financial details of your borrower undergo a thorough evaluation to determine the risk associated with the loan. Suppose you’re a cautious lender who takes creditworthiness and credit analysis as vital as they are. In that case, you will first review the application, appraisal report, and other documents to verify the borrower’s creditworthiness and loan repayment ability. 

After your review, your underwriter analyzes the credit reports, employment history, debt-to-income ratios, and other relevant factors initially submitted by the borrower. Your underwriter will also check if the loan meets your guidelines and requirements and any third-party investors or insurers, such as Fannie Mae, Freddie Mac, or FHA. Finally, the analysis report conducted by the underwriter determines whether you approve, deny, or suspend the loan.

4. Closing: Closing refers to how you prepare the closing documents, such as the promissory note, the deed of trust, and the settlement statement. You give your borrower the documents to sign and pay closing costs, such as title insurance, escrow fees, and taxes. After this, you disburse the funds to the seller or the previous lender and record the mortgage lien on the property.

The above-listed steps are how a mortgage loan origination traditionally occurs. However, problems and inefficiencies in this process can impede the success of your lending business. The section below will discuss the issues and how they affect your business.

The Common Problems and Inefficiencies That Occur In the Process

1. Application: The probability that a borrower may need help filling out the mortgage loan application or providing accurate and complete information can not be overemphasized when your loan origination method is traditional. You may have to keep requesting additional documents or clarifications from the borrower, which can delay the loan process. Depending on the level of urgency the borrower might be in, the borrower may also shop around for different lenders and rates, which can increase their credit inquiries and lower their credit score. Inferably, the borrower cannot further their application while you cannot grow your business.

2. Appraisal: Conducting an appraisal can take longer than expected or be inaccurate and inconsistent with other appraisals. The appraiser may not be familiar with the local market or have access to reliable data sources. External factors like market conditions, supply and demand, regulations, and fraud may influence the appraisal.

3. Underwriting: As with all legacy systems, manual underwriting may be complex and subjective, leading to human errors, inconsistencies, and biases. The underwriter may have to deal with multiple systems, formats, and standards that are not integrated or compatible. The underwriter may also face pressure from you, borrowers, or agents to approve risky loans or non-compliance.

4. Closing: The loan closing can be costly, cumbersome, and prone to errors or fraud. When not properly vetted, the closing documents may contain errors or discrepancies that must be corrected or verified. Another problem that may ensue is you or your closing agents having to coordinate with multiple parties and entities that are not synchronized or transparent. Not to mention that the closing may also be affected by legal issues, such as title defects, liens, or disputes.

Best Practices and Solutions That Can Help Optimize the Mortgage Loan Origination Process

  1. Automation: One of the best solutions you can explore is automation in your mortgage loan origination process. You may be wondering what automation can do differently for your business. For starters, automation can reduce manual tasks, errors, and delays in processing time. This is because automation uses software or algorithms to collect data, verify, analyze, and decide. Automation can also improve your process’s consistency, accuracy, and efficiency by standardizing your workflows, rules, and criteria. This means your loan application is more seamless, your borrowers can apply easily, and you can verify and analyze with a few clicks.
  2. Digitalization: Digitizing your origination process can enhance your business’s convenience, speed, and security. Using electronic or online platforms to facilitate communication, collaboration, and transactions among parties improves. Another benefit digitalization offers is enabling access, storage, and sharing of data and documents in digital formats that are very easy to use, update, and track. A good core lending software you can consider is Configure.
  3. Data integration: Integrating your data can improve your loan process quality, reliability, and relevance through the use of data sources that are comprehensive, accurate, and current. Data integration can also enable data analysis, visualization, and reporting that can provide you with insights, feedback, and recommendations for the process.
  4. Standardization: Standardization is an essential hack to simplifying complexity, diversity, and variability in your process. Achieving this is done using common systems, formats, and standards that are compatible, interoperable, and compliant. But that’s not all standardization can offer you. It can also facilitate coordination, alignment, and cooperation among parties by establishing clear roles, responsibilities, and expectations.

Mortgage loan origination is a vital but challenging process for lenders and borrowers. However, applying the best practices and solutions listed above can make the process more streamlined for your customers.

By Olayemi Jemimah Aransiola
February 01, 2024
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