May 2016 - Rise and Fall

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28 | TH E M R EP O RT FEATURE The ROI of Rules-Based Decision Engines How the Lack of Smarter Logic Can Cut Directly Into Lender Profits By Lionel Urban L enders have various loan origination system (LOS) choices available to- day to ensure that their operations run smoothly, but choosing the right one can be trickier than it seems. The LOS, technologically speaking, is a lender's beating heart. When the LOS is working at its peak potential, the entire system has a higher likelihood of running smoothly. When it fails to keep up, the ill effects are felt throughout the organization. Logic: The Missing Piece W hile the late Leonard Ni- moy said countless times as Mr. Spock in Star Trek, "It's only logical, Captain," Nimoy himself more wisely observed, "Logic is the beginning of wis- dom, not the end." To appreciate why this is true, it is helpful to examine the role of logic in the modern LOS, and how admin- istering smarter logic can be the difference between making the right and necessary choice. After observing the countless features and tools included in an LOS, ultimately a sizeable deciding factor should be how the system is built—and how it leverages logic to streamline a lender's work. One could well assume that popu- lar loan origination systems all function with logic, but that's not necessarily true. Behind fancy bells and whistles, and modern looking screens, many popular systems are antiquated in nature. Rules capa - bilities are not all alike, and the largest providers aren't necessarily the most sophisticated. The two most prominent ap - proaches to helping lenders get the most from their LOS are template- based, and rules-based designs. As the first main concept used, the template-based approach was tried and true for decades. Templates provided form and function. But do they provide logic? Managers at every level con - stantly think in terms of "If/Then" progressions for decision-making, and each operates within their own set of rules as set by com - pany policy, personal experience, and business ethics. The rules- based approach to LOS technology thinks the same way, though the rules come from other sources. A look back at how the all-important LOS developed over time sheds light on the importance of making the right (and logical) choice. Farewell to Form Filler Originations T he first LOSs were PC- based, run by floppy disks on desktop computers. Files were saved and moved about by basic networking, and even by exchang- ing disks. While this sounds like the lending equivalent of starting fires by striking stone to flint, it was a big leap over the purely pa- per and typewriter-based processes that had gone on before. The main point of the early systems was to provide a means for inputting data once and having multiple forms populated with the repetitive information. Later in the '90s, there were big improvements to PC- based systems, including WYSI- WYG (pronounced whizzy-wig), a now-archaic term that simply means, "what you see is what you get." Forms looked like forms instead of showing up as blinking green cursors on black screens. This led to the introduction of templates to provide information defaulted for the various loan programs and transaction types, which was a major time-saver. Templates improved efficiencies but still required users to ensure the correct template was selected, and the templates did not cover all lender activities. Additionally, this method did not take into account all the various scenarios that the staff had to deal with in real-life practices. Templates possessed a rudimentary If/Then potential, but did not accelerate true decision-making or enable advanced workflow capabilities. The Lender's Partner, An LOS Perfect Fit A s loan origination systems became more sophisticated, and shifted to installed—and later to SaaS (Software as a Service)—delivery models, capa- bilities increased tremendously. Rules-based decision engines

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