Underwriting can take anywhere between a few days to several weeks to conclude before approving or rejecting a customer’s credit application.
Legacy system limitations, internal staffing policies, loan profile complexities, and the sheer number of applications may affect the turnaround time. Then there’s the increasing redundant paperwork and longer cycle times for multiple product applications that affect the overall customer experience.
Nearly 60% of leading financial institutions turn to advanced artificial intelligence (AI) technologies to automate processes—including underwriting. That’s because automated underwriting brings a host of benefits for their companies and customers alike.
This guide looks at the benefits automated underwriting brings to banks and financial institutions in their quest to overhaul the underwriting process.
What is automated underwriting?
Automated underwriting is a tech-driven process for evaluating risk and underwriting borrowers’ loan or mortgage applications, making the approval (or denial) process is faster.
Traditional manual underwriting relies on an individual or group of individuals to review a borrower’s finances in detail and approve or reject their application. But automated underwriting deploys algorithms, which are less prone to errors and make quicker decisions, to improve the speed and accuracy of the underwriting process.
Previously, underwriters could prefill applications without wasting time collecting basic loan application information from applicants or agents. They could also perform immediate triage in the early stages of the application process based on the borrower’s answers in the application and data prefills.
Through knockout questions, underwriters can automatically reject certain risks, depending on their individual appetite. For example, some lenders want fewer real estate deals and more commercial acquisitions, so they’ll deny applications for mortgages. Or others may have too many SBA loans on their books and want to do more traditional loans under $500K per project.
Automated underwriting improves the triage and knockout questions by offering quotes based on application prefill, insights from data and analytics, and input from the applicant. Lenders can automatically underwrite risks using the insights from the prefill data and analytics, reducing the time spent making approval decisions.
Automatic underwriting systems (AUS) are gaining popularity today as many banks and financial institutions implement them in their lending processes. The two main AUSs—Freddie Mac’s Loan Product Advisor (LPA) and Fannie Mae Desktop Underwriter (DU)—help lenders determine whether their customers’ loan applications meet eligibility requirements.
However, some institutions adopt and refine their own AUSs. Quicken Loans, for instance, launched Rocket Mortgage in 2015 to automate their mortgage process, and by 2020, 98% of their home loans were using the digital tool.
There’s no significant difference between using the LPA or DU systems; it’s a matter of preference and varies from lender to lender.
How automated underwriting works
Automated underwriting deploys computer algorithms to make recommendations or complete the loan decision. Here’s an overview of the process:
- The underwriter feeds the key data points into the AUS application or software
- The AUS applies formulas to determine whether the bank loan is in the lender’s or borrower’s best interest
- Through AI, the algorithms assess the eligibility and risk factors associated with the income, assets, borrower credit history, and other given information
- The AUS will determine the additional documentation needed to verify the borrower’s details
- Finally, the underwriter uses the AUS findings to guide the approval and final loan underwriting
For these steps to be effective, the underwriter must ensure they enter accurate data into the AUS, collect and review all the required documentation, and prove the applicant is eligible for the loan.
Benefits of automated underwriting
Automated underwriting offers a lot of perks compared to manual underwriting, eliminating the hassles of short staffing, limited technology, wasted hours, human error, and lost bank or mortgage loans. Understanding these perks and their potential benefits helps you decide whether implementing an AUS is right for your business.
Let’s look at some of the more common benefits of using automated underwriting.
Increased accuracy
It’s common for loan officers to make mistakes at the beginning of the underwriting process. The number of guidelines, rules, and people involved leave lots of room for oversights and inaccuracies—which are all part of the cost of doing business.
But automated underwriting systems can detect these errors and any other sign of risk before you need costly interventions. For instance, the AUS can analyze W2 forms, bank statements, personal identification, and other critical documents needed for underwriting.
Refined machine learning algorithms in AUSs complement or replace manual work, ensuring more accurate data and document processing. This way, you can reduce the costly risks that come with human error and improve efficiency in your lending organization.
Drive underwriter productivity and improve efficiency
Tasks like automating document fraud detection and analyzing loans against hundreds of applicable guidelines minimize errors and free up your underwriting team to focus on more high-value work. In turn, you’ll reduce overhead costs and increase margins while delivering delightful customer experiences.
High-speed, same-day loan processing and underwriting approvals
Automatic underwriting can take on the twin challenges of speed and accuracy. AUS solutions offer the accurate, reliable data underwriters need to make quick decisions and serve agents and customers fast.
By implementing an AUS, you can:
- Achieve same-day, automatic, and reliable loan approvals
- Meet customers’ expectations
- Protect your business from the impact of poor data
- Save administrative time, money, and effort
Better customer experience
Manual processing times pale in comparison to what automation software can do for your underwriting process. Automated underwriting tools take a fraction of the time underwriters take to make manual decisions. And because you rely on your customers’ trust, any improvement in the customer experience and satisfaction will benefit you long-term.
Digitized submissions
Manual input is tedious, mundane, and time-consuming for your underwriting team. Plus, it’s error-prone.
Automated underwriting software allows your brokers and agents to submit and drive straight through digital applications by submitting information via a portal, mobile app, or API.
Richer business insights
Underwriters need all the data possible to provide sound decisions fast. Automated underwriting tools present all the pertinent information in easy-to-understand and cohesive reports.
Once the software retrieves all the data, it processes risk identification, highlights the applicant’s eligibility, and scores the data. This gives underwriters meaningful insights to decide whether to approve or deny the loan.
Automated analytics also help you build predictive risk models, identify fraud, and flag suspicious transactions for deeper human scrutiny. The result: smarter decisions and less risk for your company.
Automate your underwriting process with Inscribe
Automation powered by AI and machine learning technologies helps lenders move from paper to digital quoting, reduce costs, shorten cycle times, and offer better consumer experiences.
With a proven, tested, and trusted automated underwriting tool, you can achieve all these benefits without increasing risk exposure. But you’ll still need a tool to automate the fraud detection for any documents submitted during underwritner.
Inscribe automates your manual document reviews, improves fraud detection, and confidently approves more applications.
We help fraud, risk, and operations teams in lending and other financial institutions get through the underwriting process backlogs faster, more efficiently, and without additional risk to your processes.
VIVA Finance, for instance, used Inscribe—an AI-powered fraud detection and automation platform—in their automated lending process. The company reduced its application response time to less than a day, accurately analyzed fraud for over 40,000 documents in seconds, and saved $400,000 in six months.
When the software verifies a borrower’s documents as trustworthy, the company uses that data to confirm with confidence that it can lend to that applicant.
Talk to an expert to learn how Inscribe can work for you.
