A Loan Origination System (LOS) is a technology tool that assists financial institutions, such as banks and credit unions, in generating loan documentation in compliance with regulatory and internal requirements. This software can be installed on local servers or accessed through a cloud-based platform, offering flexibility and efficiency.
Daily Use of Loan Origination Systems in Banks and Credit Unions
Every day, banks and credit unions of all sizes across the United States use loan origination software to reduce risk and streamline their lending processes. This technology has become essential for financial institutions, helping them manage the complexities of loan documentation efficiently.
The Benefits of a Loan Origination System
Before loan origination systems became common, loan departments relied on legal form templates to manually generate promissory notes, deeds of trust, and other documents. This manual approach was not only time-consuming but also prone to errors, especially for institutions with a large number of account holders, branches, and loans. Loan origination systems provide several benefits, including:
- Compliance: These systems reduce the risk of compliance issues by ensuring all necessary information is accurately included in documents.
- Productivity: They increase efficiency by streamlining the document generation process.
- Collectability: By preventing oversights in documents, these systems help ensure that loans can be collected upon, even during foreclosures.
How Financial Institutions Use Loan Origination Systems
Banks and credit unions use loan origination systems in various ways. Some use the system primarily for document preparation, while others utilize it throughout the entire loan process, from application to closing. Before implementation, financial institutions must configure the system to meet their specific needs. This often involves adjusting default clauses and consulting with legal counsel to ensure proper setup.
The Basic Workflow of a Loan Origination System
Once configured, the general workflow of a loan origination system follows these steps:
- Data Entry: A banker inputs specific information about the customer, loan, or account into the LOS.
- Document Generation: The LOS generates the appropriate documents for the specific situation.
- Signature Collection: If a document requires a signature, the banker either prints it for a wet signature or prepares it for electronic signature (eSignature).
Managing Documents Generated by a Loan Origination System
Generating documents through an LOS is not the end of the story. Documents must be retained in accordance with the bank or credit union’s retention policy and other regulatory requirements. Some financial institutions choose to store most or all their documents in hard copy format, which can consume large amounts of physical space. Other banks and credit unions integrate their LOS to an electronic document management system, such as AccuAccount, which can yield additional efficiencies.
Conclusion
Loan origination systems are invaluable tools for modern financial institutions, providing essential support in generating and managing loan documentation. By streamlining processes, ensuring compliance, and improving efficiency, these systems help banks and credit unions serve their customers more effectively while minimizing risks.