One of our strategic initiatives is to move our loan process to a digitally credit scored and processed model. The concept, which we explained in a previous blog post HERE is to better match resources with risk, and in so doing become more efficient for our customer and the Bank. Our old process was to apply similar underwriting and credit review process to every loan. This structure made loans below $400,000 often unprofitable.
Tag: Loan Processing
The goal of credit underwriting is to make prescient decisions. All credit has an outcome – either it pays as agreed or it does not. The role of the underwriter is to best predict that outcome which is why it is critical to limit the amount of bias inherent in any decision. While we have looked at overt bias in credit underwriting in the past (HERE for example), in this article we look at a particular bias inherent in all bank’s processes and why it matters.
As we try to approve our new loan process here at CenterState, one area that we are focusing on is a better pre-qualification process. Faster prequalification of credit is a recent trend at banks as we all desire to be more efficient and deliver an answer to our client sooner. To do this, many banks have created a “pre-flight” or preliminary credit memo that is driven by financial ratios.
When we tell banks they need to get to a 35% efficiency ratio to be competitive in the future they look at us like we are crazier than an outhouse rat. Let’s set the branch debate aside (the largest functional cost area) as that is basically a philosophical argument. Let’s just look at your next largest functional cost – loan processing. We get challenged all the time by banks telling us they are “already at full capacity” and “we are already lean.” We point out that there is a difference between being at full capacity and being at optimal productivity.