A Mortgage Origination System (LOS) is a digital tool to manage the mortgage loan process from application submission to post-closing. A LOS fulfills two essential functions:
1. Manage the stages of the loan origination journey.
2. Qualify clients and direct them to loan execution.
An efficient LOS removes friction from the mortgage origination process and facilitates the rapid progression of loans from application to post-closing. This article examines the characteristics of an effective LOS using the avatars Lisa and Frank, who are buying a new house, to illustrate the different stages of the process.
Let’s follow Lisa and Frank through their home buying journey to see a LOS in action.
Step 1: Application
Lisa and Frank apply for a mortgage online. They enter the LOS through a portal called point of sale or (POS). Lisa and Frank complete the form to the best of their abilities and submit it through the portal. The LOS reviews the application and analyzes it to ensure that it is complete. As is often the case, buyers left a few important fields blank. The LOS sends an automatic notification to a loan officer, who helps Lisa and Frank fill in the missing information.
Step 2: Prequalification
Once the application is complete, LOS checks to see if Lisa and Frank’s reported income, savings, and credit rating are sufficient to warrant further consideration for the amount they wish to borrow. In this case, it is and the application moves from the POS to another module, called Product and Pricing Engine (PPE). PPE analyzes the loan options and rates currently available to borrowers with similar incomes, savings and credits and presents Lisa and Frank with a variety of loan options.
Lisa and Frank select their preferred loan product and terms and receive an automated prequalification letter. This letter, generated by the LOS, lets them know that their purchase can go through, if the information they have provided can be confirmed and the property they are interested in becomes collateral. In other words, the PPE makes it quick and easy for Lisa and Frank to find a loan they can afford. This is a big improvement over the days when loan officers had to meet every prospect in person and call potential lenders to prescreen a borrower. In a first LOS, this transition from POS to PPE is seamless, allowing the process to move quickly to the next step.
Step 3: Pre-approval
Lisa and Frank are thrilled to have been prequalified. They sign a purchase contract and the LOS software initiates pre-approval processes by ordering an appraisal.
Although some lenders use the terms prequalification and preapproval interchangeably, there is a difference. Prequalification is based solely on the information provided in the application; pre-approval involves proof that the application information provided is accurate. During pre-approval, Lisa and Frank will need to provide source documents, such as bank statements and pay stubs, to prove their income. Pre-approval will also require a thorough credit check so their lender can get their credit score and see how much other debt they may have.
Documents required for pre-approval typically include:
• Bank statements
• Driving license
• Social Security number
These source documents will be used to:
• Proof of income
• Employment Verification
• Proof of Assets
• Credit history
• Determination of debt to income ratio (DTI)
Lisa and Frank upload the requested documents through the LOS portal and receive a loan estimate almost immediately. It could have taken up to 72 hours if their lender did not have an online LOS platform.
Step 4: Subscription
With source documents and an independent valuation of the property in LOS, Lisa and Frank’s mortgage application moves to underwriting. In a LOS, this also happens electronically once the system determines that all pre-approval conditions have been met.
During underwriting, a lender assesses the physical and financial risks associated with a loan using source documents provided by a borrower as well as public and proprietary data to make a final decision to approve or reject an application. .
Subscription is a data-intensive process. An effective LOS must be tightly integrated and work hand-in-hand with customer relationship management (CRM) tools to quickly send requests and process responses.
Note: An effective LOS must be able to electronically connect to various third-party systems. For example, a lender may have specific customer relationships and reporting needs that are not covered by an LOS. Most third-party software includes a protocol, called an application programming interface or API, to facilitate this connection.
Step 5: Document preparation and compliance
Once a loan has been approved, the loan agreement and government required disclosures must be prepared and sent to Lisa and Frank. Accurate and timely documentation is essential, not only for a good customer experience, but also because of the hefty fines that could be imposed for non-compliance. comply with federal and state lending laws. Again, proven LOS software can help.
Lisa and Frank’s loan estimate and final disclosure must match for their lender to comply with fair lending laws. Regulations are constantly changing, so your LOS should be updated regularly and adapt to changes in regulatory requirements.
A document management system allows an efficient LOS to take documentation out of a loan officer’s briefcase and less secure workstations and into a protected cloud environment.
Lisa and Frank may not even know how their lender’s use of a document management system protects their sensitive financial data from prying eyes. It’s something they shouldn’t and won’t have to worry about. Without a secure document management system, however, what started out as a happy journey to the dream of home ownership could quickly turn into an identity theft nightmare.
An effective LOS document management system must also be able to securely store borrower documents after closing, in accordance with industry security practices. Data security requires constant diligence as there is never a guarantee against a data breach.
Step 6: Closing, financing and post-closing
Now that Lisa and Frank have successfully applied for a loan, been approved and received all the required information, there is only one step left before they get the keys to their new home and open a bottle of champagne: closing. Mortgage closings are a complex ballet with many moving parts that must be perfectly choreographed to deliver those keys on time and leave everyone (including regulators) with a smile on their face.
An effective LOS provides a dashboard for the lender to see, at a glance, what tasks have been completed and where things may need a little more attention to keep their loan production pipeline running smoothly. .
Lisa and Frank’s loan ends on time and they share their good news and a resounding approval from their lender on social media. They host a housewarming party and share a bottle of champagne provided by their loan officer, as well as a card they display on their fireplace.
For Lisa and Frank, the closing gift from the lender was a thoughtful gift. But it was also the first of many thoughtful relationships they’ll have under the 84-contact, 5-year “customer for life” post-closing program built into their loan officer’s LOS.
Their loan officer knows that by staying in touch with Lisa and Frank, they’ll get priority when a friend asks for a referral or when they’re ready to sell or refinance their home.
A good loan officer might be able to do all of this on their own, but why reinvent the wheel or leave such an important business development process to chance?
Before leaving Lisa and Frank and wishing them happiness and success in their new home, let’s review their journey.
Remember, they started by filling out a form in an online point-of-sale portal. The LOS captured this information and initiated the funding process through the Customer Relationship Management and Product and Pricing Engine. LOS helped move the process forward with a dashboard checklist and integrations that allowed the loan officer to ensure the application was complete. The application could then continue to move from prequalification and preapproval to underwriting, documentation, compliance assistance, closing and beyond.
Lisa and Frank had hoped for efficiency in the loan process and were not disappointed. By streamlining and automating the loan origination process with efficient LOS software, Lisa and Frank’s successful journey to homeownership can be repeated with future borrowers so lenders continue to increase ROI. and their loan portfolios.