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.”
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