Why Today’s LOS Fail to Meet Lending Needs in 2019
By Howard Schulman
There is a general perception that the newest generation of Loan Origination Software (LOS) covers all the needs of both lenders and borrowers. With advanced technology that automates risk assessment and credit scoring, provides multi-channel capabilities, assists with compliance, and enables lenders to streamline loan processing and product offerings, LOS promises a far more efficient loan origination experience for all.
However, 70% of potential borrowers still abandon their loan application. It’s clear that the newest LOS is not delivering on all of the lending needs of consumers in 2019. Below we highlight where LOS deliver on their promise, and where LOS still need improvement.
Problem #1: LOS Are Primarily Focused on Backend Needs
While LOS trumpets advances in compliance, automation, omnichannel capabilities, and speed of response, the reality is more basic than buyers are led to believe. What’s more, most of the benefits provided by LOS are geared towards the backend of loan origination, serving the needs of underwriters and lenders, but doing little to help loan originators or the applicants themselves.
There are six main benefits which LOS claim to bring, but they are not sufficient to improve the loan application experience.
In the realm of compliance, stipulations, and e-contracting, most LOS marketing emphasizes the ways that the LOS assists with compliance for the lender, such as securely storing copies of vital customer documentation and disclosure documents, generating customer notices and advice, and ensuring that all customers’ responses are consistent. These do nothing to help the applicant enjoy a smoother or easier application process.
Automated credit scoring and risk-based pricing are not utilized to their fullest extent. Borrowers still have to submit an unnecessarily high number of documents in order to provide their credit information, even though the right technology would allow the lender to request and view this data directly from credit agencies and financial institutions.
LOS claims to bring multi-channel capability which can receive and process loan applications from any customer channel, but in practice the average borrower needs five lender interactions to complete a basic loan application.
The promise of more flexible product offerings through LOS should make it easier for borrowers to access relevant loans, but more than 66% of borrowers reported spending at least three hours comparing loan products. An LOS should be able to suggest the most appropriate loan product for each borrower automatically and present the options in a way that enables easy comparison.
More streamlined loan processing and simultaneous distribution is a boon for lenders and underwriters, but little of the benefit is passed on to borrowers. In fact, it’s arguable that increased automation in LOS has made more work for applicants and loan agents. Today’s highly automated LOS may simply decline an application and send it back to be reviewed and corrected, which means more work on the part of the loan agent and/or the applicant to locate and correct the error. A manual loan origination worker may have seen a simple error and self-corrected it or may have sent it back with a note explaining what is needed instead of leaving it all to the agent and applicant.
LOS automation speeds up credit scoring, risk assessment, and pricing for the lender, but does little to reduce the burden on the borrower.
Today’s LOS Are Failing Lenders
From the applicant’s point of view, Loan Origination Software does not keep up with the speed and efficiency that they expect in other areas of their lives.
For example, today’s customers live their lives on their mobile phones and are used to mobile-centric, mobile optimized processes. Borrowers expect to be able to complete loan applications through their smartphones simply, completing all aspects of an application with the ease they’ve come to expect with other online processes like Amazon purchases or Hotel Reservations. Even the most developed Loan Origination Software fails to deliver this seamless, mobile friendly capability.
In an age of instant answers, loan applicants also want to access instant loan completion. When this doesn’t materialize, borrowers look for other solutions or simply abandon their loan application. Currently, loan application processes are far from instant - it takes hours for most borrowers to gather the documents they need to apply, and days until they receive a response regarding their loan application. In contrast, 64% of consumers said that they expect companies to instantly respond and interact with them.
Moreover, at a time when even airline tickets are sent electronically, loan applicants resent having to submit documents offline. Having to print, copy, or scan key documents, or to stand in line at the post office to send them through the mail, is seen an archaic waste of time in a digital age. Up to 83% of borrowers applying to traditional lenders report that they had to submit some documents offline, and so did one in five applicants to online lenders.
Additionally, LOS has made little inroads to make the loan application processes simpler for the borrowers and originators. The majority of applicants need assistance from a loan agent to complete their loan application, but only a minority are able to get the help that they need. Nice InContact reports that 90% of borrowers want an agent-assisted interaction, but only 35% of those state that they are “highly satisfied” by their experience.
LOS Fail to Deliver
Between the impact of a long and complex loan application form; a high number of requested documents, many of which need to be submitted offline; the difficulty in accessing agent assistance; and an application process which tends to be isolated on just one channel, would-be borrowers have to spend many hours of frustration just to apply for a loan. They then have to wait for a response and potentially go through the entire process again if their application is not accepted. The combined shortcomings of LOS result in the high abandonment rate for loan applications.
Lenders Need a Robust, Agile Technology Bridge
It’s in everyone’s interests to make it easier for borrowers to complete their loan applications. Borrowers will increase their loan requests if the process is less arduous. Loan agents will improve their revenue with a higher loan application completion rate. Lenders will enjoy more business when both their agents and borrowers are happy with the application process.
LOS is working well for the backend of lenders and underwriters, but it is not delivering the necessary frontend services for borrowers and loan originators. There is a clear demand for a new system which focuses on customer experiences and customer needs. Lenders need to add a robust customer experience solution that bridges the gap between LOS services and the needs of today’s customers, in a smart, agile manner.
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