Indirect Lending Questions Your Loan Origination System Should Answer

Loan origination systems (LOS) often vary in terms of the functional capabilities and benefits they provide. Some are strong in certain areas of lending such as direct or small business; other systems have a more general lending focus. Then, there are those standout systems that are designed and built based on years of knowledge and experience. These systems offer expert lending functionality for many channels.

Indirect lending is showing more momentum than it has in years, and the features and functionality credit unions need are not always included in systems they purchased primarily for other types of lending a few short years ago. As credit unions are taking bigger slices of the indirect lending pie, they are looking to upgrade their systems to increase their financial success.

But what software features do credit unions need to support indirect lending? What functionality will help a credit union succeed in the burgeoning field of indirect lending? The following 10 questions will help credit unions determine whether an LOS solution has the features they need to drive growth in the indirect lending portfolio.

1. Does the LOS have connectivity to third-party indirect portals such as Dealertrack and RouteOne?

A loan origination system that effectively supports indirect lending should provide a credit union with the ability to originate loans through multiple third-party indirect portals. These web-based portals are essential for effectively targeting the best indirect deals by connecting lenders to the largest network of dealerships. A credit union’s loan software should also communicate all needed details regarding the loan back to the third-party indirect portal.

2. Does the LOS have the ability to handle reserve and origination fees?

Look for loan software that allows configuration of the fees paid by the credit union to purchase a vehicle contract from the dealer. This provides flexibility to calculate and pay funds to each dealer by an agreed upon method and value.

3. Does the LOS have the capability to auto decision and apply risk-based pricing for buy and contract rates?

This ability allows a credit union to implements its credit policy with a combination of matrices and rules. It also provides auto decisioning and pricing that can be communicated to the borrower, internal end-users, and dealers.

4. Can the LOS be structured to capture contract information and validate it for compliance to policy?

Post-approval loan processing rules are designed to ensure that contracted or accepted application terms are compliant with a credit union’s your policy and match the analyst-approved terms. They also ensure the acceptance of applications that are outside policy is restricted to individuals that have the appropriate authority.

5. Does the LOS automatically apply stipulations and route to appropriate queues?

Stipulations are able to be created and configured both globally and individually per product.  These are used to record and track various requirements needed to complete an application.

6. Does the LOS have configurable post-approval processing steps?

A credit union’s loan software must provide the ability to determine the list and order of steps that the end-user must go through to close an application. This feature provides added flexibility to diversify an institution’s indirect lending portfolio.

7. Can the LOS handle disbursements, including issuance of checks and automated clearing house (ACH)?

This allows the financial institution to select the method that each dealer will use to receive funds. Using ACH allows for automated and faster distributions and transfers of funds.

8. Can the LOS send rapid notifications to dealers of funding activities?

In the fast-paced environment of indirect lending, dealers need to stay updated at every turn. An LOS platform should allow for daily notification — email or fax — of activities on all loans submitted for each specific dealer or group of dealers.

9. Does the LOS have the ability to manage reserve methods and probationary status as well as contracts and agreements including access to dealer statistics and dealer-specific reports?

Being able to store, track, and report on all necessary agreement information between the dealer and credit union is important for effective indirect lending. This includes the fees paid by the financial institution to purchase a vehicle contract from the dealer, contact methods, and other pertinent dealer information.

10. Is the LOS capable of boarding loans/customer accounts to servicing systems through a new account setup (NAS)?

Credit unions must be able to communicate and update loan and member information to many third-party servicing systems. This communication can be through either real time or batch integration. Once boarded, this information can also be used to create new loans in the future through a CIS lookup.

As a credit union compares LOS platforms, it needs to evaluate the subject matter expertise of the system provider. Look for a well-rounded provider who has know-how in dealer management, underwriting, compliance, and funding — then leverage that expertise to get a leg up on the competition.

The CRIF Lending Solutions’ ACTion loan origination system offers end-to-end automated processing of all types of loans including direct, merchant, online, business, and indirect. The ACTion platform opens doors for increased staff productivity, greater system flexibility and functionality, and most importantly, an expanding loan portfolio. Neighbors Federal Credit Union used ACTion to streamline its operations and now processes more than $18 million in indirect loans each month with only two underwriters. For more information on this was done, click the button below to download the “Neighbors Federal Credit Union Case Study.”

Read more: http://www.creditunions.com/articles/10-indirect-lending-questions-your-loan-origination-system-should-answer/#ixzz3Qwzwjyk9

Understanding the Core Banking System Industry

Silverlake Axis - Part 2 (Understanding the Core Banking System Industry)
Fig 1 Silverlake Axis Integrated Banking Solution

The most important question that will come to everyone's mind when we talk about Silverlake Axis will naturally be what is a Core Banking System (CBS), is it just a software like your Adobe or Office? This will be what this whole post will be about.
The "Core" in the CBS refers to Centralized Online Real-Time Exchange, something like your trading platform where information is updated Real-Time. Gartner defines CBS as "those applications responsible for processing and posting transactions in the domains of payments, current and saving accounts, loans and securities (such as performing current and deposit accounting, maintaining loan accounts, holding securities positions, clearing payments)." Basically, as seen from fig 1, it is a centralized system that handles every aspect of the bank's business. When you deposit your money into the bank, CBS will update your main account and distribute the information to your ATM, credit card, credit risk, customer information and e.t.c. I will treat it as the human brain that's in charge of processing of all information received from the five senses and that exert a centralized control over the body.
Changing a core banking system has been treated as a high risk, high cost and high reward project. Cost saving is often not a sufficient reason for bank to change them. The risk and cost comes from the fact that an error can damage the reputation of a bank as seen from the numerous debacles that DBS has got itself into. Changing the system also requires the old system to be put down before the new system is being put up, and this will create downtime for the bank. All the employees in the bank will also need to be re-trained and it will be sometime before they can get used to it. Cost of the project is often high and project overrun is normal due to the numerous constrain involved and that it will often has to be done only in the weekend.
Kevin Lomax, the erstwhile chairman of Misys – one of the largest independent software vendors (ISVs) focusing on the financial services industry – was once quoted as having said: “Changing a core banking system is like replacing the engine of a Boeing aircraft mid-flight.”
“The challenge of replacing a bank’s core IT systems has been equated with everything from open-heart surgery to replacing the engine in a moving car. It is without a doubt one of the most difficult and complex challenges a bank will ever face, with implications that cut across functions, products and geographies.”http://www.deloitte.com/assets/Dcom-Shared%20Assets/Documents/08-1266%20CoreBanking%20preflight%20final%20web%20version.pdfhttp://www.cimbbank.com.sg/index.php?rp=core+banking+faqs&tpt=cimb_sgThe above is an example of the impact of changing the CBS for CIMB Singapore, which only has 2 branches here.
Given the high risk high cost proposition, it is expected that many banks will not undertake such a project unless it is no longer a choice of theirs. As such, an adoption of a new CBS in a bank is likely to last them for at least the next 15 years and more. Please take note of this point as this is going to be the important for Part 3 later."While other system replacements tend to cycle every 5 to 10 years, a core banking system is expected to deliver capabilities and value for at least 15 to 20 years. Core systems are often viewed as a “once-in-a-lifetime” investment akin to a major factory replacement."h20195.www2.hp.com/V2/GetPDF.aspx/4AA2-7566ENW.pdfIf that's the case, why are the banks starting to change their core banking system given the extreme high ROI needed to convince them? The answer is simple - survival of the fittest. There is no doubt as to the stickiness of CBS in a bank given that many banks are still using the old legacy system that date back to the 1970s and 1980s. Thus, these old systems are increasingly unable to meet the demand in today's world.



The ineffectiveness of the old legacy system is expected to cost banks in mature markets approximately US$200 billion annually according to the IBM Institute for Business Value Analysis. Up to 79% of a bank's IT spending are sometimes being used to maintain the old legacy system. This is just part of the reasons.
Increased regulation in the form of Basel III and other standards require a higher standard of information reporting as well as integration of the system. The wave of consolidation and M&A has also resulted in banks having multiple core banking systems that just add to the cost and the complexity of the demand today. So have most of the engineers that have been maintaining the old legacy system retired and it is harder to find people to fix the old system. Competitors that have done so have also proven to be leaner, faster and more efficient, and have managed to cut down on their IT spending. Thus, the time has come such that many of the old systems are to be overhauled since 2005.
Despite the current economic turmoil, Ovum's "Retail Banking Technology Spending Model through 2016" has predicted that global spending on retail banking technology will increase by $3.6bn (3.2%) in 2012 and will hit $135bn over the next five years. Banks in emerging economies in the Asia-Pacific region will grow the fastest at a rate of 8.3% in 2012. Therefore, room for growth in the banking technology market is still plentiful especially in Asia.
Part 3 will be on Silverlake's core revenue generation - Software implementation and Maintenance and Enhancement Service as well as its competitive advantage.

Silverlake Axis - Part 3 (SIBS, The Source of All Profit)

http://sgyounginvestor.blogspot.com/2012/03/silverlake-axis-part-3-sibs-source-of.html