Loan Origination Stages You Should Never Skip

As we grow the LendingWise CRM & LOS platform, I have met with 100’s of brokers & lenders of various sizes & in multiple verticals. Over the years, I’ve noticed that our solution is not a one size fits all, due to the lack of standardization across the commercial lending landscape, specifically among private lenders. Almost every lender & broker I meet with has a different need, level of understanding of how cloud based software works, and the interpretation of CRM & Loan Origination Software — specifically, where it starts, the various stages within the process and where it ends. In considering all viewpoints it is important to take a holistic view of the origination life-cycle.

Irrespective of the loan type (i.e. fix & flip, construction loan, bridge loans, rental loans, business funding, line of credit, lease) or whether your approval process is manual or automated, brokers & lenders need a way to scale out their business and dummy proof their process. Typically top level management has all the guidelines, workflows, required docs, & capital sources all buried in their head- It’s what makes them successful, but also makes it difficult to scale their business. Our goal is to help lenders bring their process into the 21st century using cloud based infrastructure that supports all parties from the borrower, broker, processor, underwriter, & even 3rd party vendors that play a vital role to ensure a timely, compliant loan closing. 

Below are seven stages I feel are the critical components of the loan origination process.

7 Stages:

1. Pre-qualification – The first step in the loan origination process is taking in a quick application or pre-qualification. This can happen via a mobile friendly webform or logged in as a loan officer/broker or any type of user in the LendingWise platform. During this stage the potential borrower will submit just enough info specific to the loan program, which helps determine eligibility and optionally upload supporting docs that are also conditional to the selected loan program. 

Once this information is submitted to the broker or lender, it is typically reviewed and a loan pre-approval, term sheet, or LOI may be generated with an E-sign option, allowing the borrower to continue in the process to obtain a loan. 

As a broker, you may need to make some calls to ensure you have found the best lender for the deal, but don’t worry, LendingWise has a marketplace of lenders that can help you find the best terms for your borrower. 

2. Full Loan Application – In this stage of the loan origination process, the borrower is prompted to complete the full loan application, which will be pre-filled from the quick app loan application data. Additionally, the term sheet and other initial docs can be E-signed & payment collected for application, appraisal or due diligence, which ensures you have a client locked in and committed. Once again, during this full loan application stage, the system will ask for additional required docs that are relevant based on the selected loan program. 

3. Application Processing – When the full loan application is received, the first step is to review it for accuracy and completeness. All required fields must be filled in, (thank goodness for field validation that you can control on every field via the quick app and full app) On the back end decision makers can quickly analyze the deal, order credit & other 3rd party services. Depending on the results, you may need to request additional information or proceed into underwriting… or BOTH. Dual tracking a loan file is common, since many private money/hard money loans are time sensitive. 

At LendingWise we have ROXY, an automated assistant that alerts borrowers, brokers and any back office employee related to the loan of real time loan status and outstanding conditions automatically via predetermined intervals. ROXY will link respective user to their loan status & doc portal. See example here. 

4. Underwriting Process – When an application is deemed complete enough, the underwriting process begins. The company runs the application through an internal process of taking a variety of components into account: borrower experience & background, credit score, collateral, additional guarantors, and many lenders will generate their own additional unique scoring criteria that are unique to their business or industry. Sometimes this process is fully automated; other times it is manual or a combination of both. Underwriting guidelines can be loaded into the LOS or export the loan data into a proprietary Excel template with deal sizing formulas. 

As a broker you may not be responsible for this stage and the remaining stages below, but you will want to make sure you understand them and be able to track these stages within your CRM & LOS. As table funding becomes more popular for brokers, our system will be your critical backbone to make you look and act like the lender. Reach out to us for table funding partners. 

5. Credit Decision – Depending on the underwriting results and/or loan committee review, the file can be approved, denied or sent back to the originator for additional information. A denied loan file may be reevaluated if certain parameters are changed, such as a reduced loan amount, different terms, or additional guarantors. 

6. Quality Control/Clear to Close – When dealing with loans that are regulated or large loan amounts, the quality control stage of the loan origination process becomes critical to lenders, especially when there is direct or indirect recourse involved. Typically the application would be sent to a quality control queue where the final decision and other critical variables can be analyzed against internal and external rules and regulations. This is essentially a last look at the application before it goes to funding or sent to a title company. 

7. Loan Funding/Escrow Holdbacks – Most loans fund shortly after the loan documents are signed. The LOS can track funding and ensure that all necessary documents are generated accurately, executed before or at funding. Regarding fix and flip or construction loans, the lender will hold back funds in escrow. The LOS will track and manage the funds control & release of these funds carefully. 

I have had the pleasure of meeting 100’s brokers & lenders that are strategic, analytical, aggressive, quality focused, care about the borrower, and embrace technology upgrades such as new loan origination software (LOS) solutions. Based on the Company’s size, loan volume, & role in the lending pyramid, will determine how robust they want their CRM & LOS setup. Luckily with a flexible platform you can choose a la carte what features & functionality to deploy on demand, like a swiss army knife. Brokers & lenders that excel in their industry vertical will adopt a technology solution that has everything under one roof. Here’s a quick list of features and benefits that should be part of your LOS:

• Receipt of applications through multiple channels such as online webforms, E-mail, Phone, 3rd party CRMs API, webhooks, & lead vendors. 
• Control of dynamic smart forms that ask for the right data & required docs relevant to the loan program. 
• Submit and receive credit bureau information online
• Make credit decisions automatically or manually with customized views of loan data
• Capability to re-issue term sheets to each applicant separately
• Ease of use by auto-filing existing data for repeat borrowers
• Customize your own document library for loan docs, disclosures, executive summaries, etc...
• Track internal cost of capital and yield spread premiums paid at loan sale or received monthly
• Automate the doc collection process based on real time status of each required doc
• Provide access to a marketplace of lenders with proprietary guideline matching algorithms.
• Link the origination data to funding processes and the servicing module in real time
• Automated Clearing House (ACH) payment(s) directly from the system for borrower debits & investor credit
• Build a customized underwriting workflow based on critical steps & automate tasks, e-mails, or SMS rules based on pre-defined parameters 
• Upload or Download supporting loan docs in an organized way
• Generate reports, loan tapes, servicing onboarding data based on status

I hope you enjoyed this post and if you have a few more minutes, you might enjoy reading a post I wrote a while back called What’s in your Lending Stack? I’m a big fan of the private lending and commercial lending space and have been focused on web based loan management technology for 10+ years. Reach out to me with any questions to learn more about LendingWise.com

Chris Fuelling

Founder & CEO

[email protected]