Recently while onsite with a credit union, a great underwriter explained centralized underwriting in the following way:
“It is the originator’s job to write the beginning of the member’s story; it is the underwriter’s job to write the ending.”
Couldn’t have said it better myself.
If you’ve known Don or I for any length of time, it is probably no surprise to you that we are fans of centralizing your consumer lending department. That said, one challenge of centralized underwriting is ensuring the right story is being written for your members. In the perfect world, your loan application should flow from one “author” to the next seamlessly. Now, I’ve been inside a lot of credit unions, and I think it’s fair to say that not everyone has got this seamless piece mastered.
Instead, I see many loans falling into one of these traps:
- The dreaded back and forth. When your originators are not having the right interview conversations during the application process OR are not effectively documenting this conversation in the notes of the application your underwriter is left with too many unanswered questions. Here your underwriter is unable to write the end of the story without going back to the originator with additional questions. When this happens, it creates additional work for both originator and underwriter, slows the decision process, and ultimately costs the credit union more money.
- The ending of the story is written wrong. Imagine if Romeo never had the life-altering battle with Tybalt that led to his banishment. Eventually, Juliet realizes her one-day romance with the bad boy with just a teenage phase. They break up, and Juliet goes on to lead a happy life with Paris. The greatest romantic tragedy ever written suddenly looks like the latest drama with my seventeen-year-old daughter. While not on a Shakespearean level, you get the endings wrong to your members’ stories all the time. You turn down loans that go elsewhere and perform, you approve loans that, in hindsight, you could have easily predicted would go bad.
The good news is, when done well, a centralized lending department is an absolute thing of beauty. The challenge is going from good enough to great.
Here are some questions you should be asking yourself about your consumer lending team:
- Do your originators know what a good notes page looks like or are you still relying on ineffective templates to try and band-aid the situation?
- How many loan applications are being looked at 2 or 3 times because your “authors” are not on the same page?
- Do your underwriters know the difference between “nice to have” information and “need to have information”? Meaning, are your underwriters comfortable making GOOD loan decisions even if a few “nice to have” pieces of the story are missing?
- Are your originators fighting for loan decisions when they feel like the ending to the story has been written wrong?
- Are your underwriters looking for ways to approve loans, rather than searching for reasons to decline loans?
2023 has been a strange year, and it’s only April. There is a lot of uncertainty in the air for your members. Application volume is down. Now more than in previous years, you need to make sure you are getting your members’ stories right. In this cutthroat environment, good isn’t always going to hack it, you need to set your people and processes up to be great.
If you need help, we are here. Whether you are looking to train your originators and underwriters or if you need help refining the processes and structure of your lending team, both Don and I are here to help you along the way.
Jessica Vartanian
Senior Consultant
CU Lending Advice
jessica@culendingadvice.com