What is a Loan Origination System?

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A loan origination system (“LOS”) is technology that helps banks generate loan documentation in a way that complies with regulatory and internal requirements. Banks usually install loan origination software on their local servers or access it through a cloud-based platform. Each day, banks of all sizes across the United States utilize loan origination software to reduce risk and streamline lending.

Potential Benefits of a Loan Origination System

Before loan origination systems became common in banking, loan departments typically relied on legal form templates to manually generate promissory notes, deeds of trusts, and other documents for customers. This approach was time-consuming and prone to errors, especially for banks that have many customers, branches, and loans.

Loan origination systems help banks overcome the challenges of manual document creation, delivering numerous potential benefits to banks:

  • Compliance: Reduced risk of compliance issues caused by missing or errant information in documents.
  • Productivity: Increased efficiency through a streamlined approach to document generation.
  • Collectability: Preventing oversights in documents helps banks ensure collectability during foreclosures.

How Banks Use Loan Origination Systems

Some banks use their LOS primarily for document preparation, while others use it from application through closing. Prior to use, however, banks should ensure the LOS is configured to their specific needs. For example, a bank may determine that certain default clauses need to be adjusted prior to use. Consulting with the bank’s legal counsel is an important step to ensure proper LOS setup.

Once configured, general use of an LOS follows this basic workflow:

  1. A banker inputs specific pieces of information into the LOS that pertains to the customer, loan, and/or account.
  2. The LOS generates the document(s) that are appropriate for that specific situation.
  3. If a document requires a signature, the banker either prints it for wet signature or prepares it for eSignature.

Managing Documents Generated by Your LOS

Generating documents through an LOS is not the end of the story. Documents must be retained in accordance with the bank’s retention policy and other regulatory requirements. Some banks choose to store most or all of their documents in hard copy format, which can consume large amounts of physical space. Other banks integrate their LOS to an electronic document management system, such as AccuAccount, which can yield additional efficiencies.

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