Information on the Importance of a Loan Officer

Information on the Importance of a Loan Officer

In the day and age we live in a large majority of our financial transactions occur electronically. Almost everywhere that we shop today we can use a debit or credit card to purchase goods and services. Another change in the past ten to fifteen years has been the business sectors move to paying their employees with direct deposit transactions. Companies find it more efficient and cheaper to simply set up a wire transfer of funds into an employee’s account, rather than writing and mailing a check every pay period. These changes have driven more and more consumers into the electronic banking sector and for some into the banking sector for the first time. Almost every American conducts business with a bank or other similar financial company. One of the most vital positions within a bank is a loan officer.

A loan officer is the face of the bank to potential lending customers. Banks make the majority of their money from originating loans. Consumers have a lot of different options when it comes to acquiring financing. A loan officer’s job is to establish relationships with potential clients, gather critical information about potential clients, and communicate this information with the credit department of the bank. A loan officer is a salesman selling the bank to potential clients. Loan officers are usually supported by an assistant who coordinates information gathered by the officer and sends it to its correct destination, i.e. credit analysis, supervisors, loan committee’s ext. Loan officers have to be excellent communicators and be willing to approach new people. Loan officers are often times involved in community organization and public events. The purpose of this is to get to know the community and build rapport. Since a loan officers job is totally centralized on customer relations and sales, they often times work unusual hours. It is pretty normal for them to work into the evenings and also on weekends.

The typical day for a loan officer is really unlike a lot of traditional jobs in business. They will show up to the bank around 10:00am, but sometimes they will be stuck working, whether in the office or with customers, until 6:00pm - 9:00pm. As previously stated, these non-traditional work hours are utilized to try and meet the customer during convenient times. The majority of customer the loan officer is trying to solicit are normal workers and professionals that work along traditional business hours. This means that some loan officers have their highest volume of customer interaction between the hours of 5:00pm- 8:00pm. Loan officers have to be able to plan and manage their time well. Loan officers are not as heavily supervised as other positions in the bank. This is because the compensation structure, commissioned based, insures that individuals who are effective are rewarded and individuals that are not effective are not rewarded. Senior managers let the incentives to the motivating, not their own efforts. This does not mean that senior management is not involved with the day to day activates of a loan officer. It simply means that senior managers do not have to micromanage loan officers. Many in the industry say that the ineffective loan officers generally will not last long. Loan officers also spend a large portion of their time on the phone. It is not uncommon for a loan officer to make close to one hundred calls in one day.

Loan officers have essentially two main roles, information collectors for the mortgage department of a bank and as salesmen for the bank. They collect information in many ways. The most basic way that they collect information is simply by having lots of “face-time” with people. The majority of people out there right now are not shopping for mortgage options. However, almost everyone at some point in time will purchase a house and need a mortgage. The savvy loan officer understands this basic principle and probably does not try to heavy sell everyone that he or she may come into contact with. The savvy loan officer spends time to build personal relationships with as many people as possible and really tries to develop a mutual trust. As the loan officer builds more and more relationships with people within the community, they have better odds of getting steady business. When it comes time for an individual to purchase a house and need lending services, they definitely remember the relationship that is already in place with that trusted loan officer. These crucial relationships serve one of the loan officer’s biggest goal and that is to gather information.

Some loan officers also utilize marketing data that is gathered from a variety of sources. Leads can come from marketing companies that use software to detect and track internet users that shop online for mortgages. Some banks buy this information and then use the lead to make a sales call. Larger banks can provide their loan officers with this valuable information that often times can end up in a loan origination. This brings us to the second main role of a loan officer and that role is a salesmen. Loan officers have to sell themselves and the bank to potential customers. Customers that have a good credit rating and financial history are very valuable to banks. Local banks compete heavily for these valued customers because they can offer a large mortgage and also lower their overall mortgage portfolio risk.

Often times the only way that banks can differentiate themselves from their competitors is on “value added” matters. The difference between mortgage rates between different banks is often times very small between customers with similar historical financial profiles. Knowing this, it really comes down to loan officers to sell the bank to customers on other points of merit. Banks try to distinguish themselves by great customer services, bank atmosphere, and over all easy and quality of services. This means that a large amount of responsibility falls upon loan officers to facilitate these points of merit. This explains why successful loan officers are valuable and can earn compensations similar to what a doctor or lawyer would make. Talented loan officers have great people skills and communication skills. Banks highly value these individuals and try their best to retain them. If a customer uses a particular bank for their personal banking needs and also uses the same bank for their home lone lending needs, it can be said that they are a well-established customer. These types of customers usually stick with a bank for many years and are the main source of sustainable revenue for banks. If a bank has a solid customer base of these valuable customers, it can provide them with flexibility to try other strategies in other sectors of banking. Without this solid customer base, a bank will scramble to generate revenue in the short term and not really be able to strategies for long term growth.

A loan officer’s essential responsibilities have not change much over the past 50 years. However, the tools that they utilize to fulfill their two main roles as information collectors and salesmen have changed. The profession has gone from one that has required extensive hard paper filing needs and number crunching, to one of electronic information processing. These new technologies have dramatically affected the landscape of mortgage departments. Today’s mortgage department employees fewer clerical employees and is able to devote more resources to high quality loan officers and analyst. Mortgage departments these days also use substantially less quantities of paper when processing loans. Finally mortgage departments these days are a lot louder, meaning loan officers are spending more time on the phone or with customers instead of crunching number to determine credit risk. Technological advances have enabled mortgage departments to run more efficiently and dramatically reduce the quantity of human errors.

Loan officers build relationships with potential clientele and gather information about them in order for the bank to be able to offer them loans. Applicants usually will fill out preliminary information with an assistant that works for the Loan officer. From that point, if an applicant seems promising, the actual loan officer will start to correspond with the clientele. The loan officer will assess the applicant’s needs and qualification. The next step in the process is the loan officer will pass the information along to an assistant who will organize the information into a file to give to the credit department. The credit department will then use different financial analysis tools to determine risk and qualifications for a loan applicant. Traditional analysis is done by credit analyst. The credit analyst will plug in financial information into formulas to get ratios and other indices to include in the financial assessment. This process varies across banks as to the level of computer automation in the indices formulation. For example, some mortgage departments are still using paper, pencils, and calculators while other mortgage departments are using advanced computer statistical algorithms to pinpoint credit risk.

After their assessment has been completed, the credit department will write a “credit memo.” Depending on the circumstances and size of the loan the information will then be passed on to personnel who will decide to extend the loan or reject the loan. If the loan is above a certain monetary threshold the credit memo could be brought before a committee of some sort to be voted on. If the loan is a smaller loan, often time’s loan officers in conjunction with loan managers can approve the loan. Sometimes if a loan candidate cannot be approved for the whole amount that he/she has requested, a smaller amount will be approved. Many banks make it a policy to try and offer at least something to loan candidates. Maybe they cannot give them the half a million dollar loan that they have requested, but they will offer them something.

Loan officers have many information needs. A savvy loan officer will do their best to keep up on regional economic conditions and news. For example, maybe Bell Helicopter just won a government contract to refurbish a fleet of military aircraft and will be hiring or transferring 100 new jobs to a location. Most of these jobs pay very well and the individuals that hold these jobs on average maintain decent financial positions. This information can be great news for local banks and their respective mortgage departments. It suddenly means that they have the opportunity to generate, theoretically, up to 100 new loans. Proactive loan officers will find ways to get in front of this new business. Loan officers also have information needs concerning the local competitive environment. As previously stated, it can be hard for a mortgage department to differentiate itself among its competitors. A loan officer must be informed of new tactics and efforts that its competitors are taking to solicit business. A new marketing campaign that a competitor is embarking on would be pertinent information that a mortgage department would need and want to know. From this point, the bank could form a strategy on how to react to bold marketing campaigns that their competitors may try.

Software that is used to facilitate the loaner officer’s crucial needs has been created to not only make his job more efficient but also to increase profitability of every-day operational decisions, such as customer acquisition or customer relationships management decisions. Plug and Score is a great example of software created to assist the whole loan origination process. First and foremost this software is very easy to obtain all a company has to do is pay a licensing fee to acquire or purchase the license to use the software. While the initial investment to purchase the software might be extensive for start-ups it does have the option to obtain a monthly license. All that is needed in relation to hardware is a computer with a Core 2 Duo, 2.5ghz or a AMD Athlon 64 x2 2.5 GHz or any other type of processor that can meet or exceed these requirements. In regards to RAM all that is needed is 2 GB. The computer must have windows server 2003 or higher with .net Framework 3.5 installed. In regards to a web server it must have internet information server 6.0 or higher. The best part of Plug n Score is that the software is web-based and only requires a web browser to be used. All the major browsers are currently compatibly such as internet explorer 7.0 or higher, Google chrome, and Mozilla Firefox. From its low hardware requirements to its great intuitive interface it is easy to see why Plug n Score is simply the best choice in the loan origination software market. With Plug and Score you can save up to 30% of time due to automation and secured business processes. Packaging raw customer information into an easy to understand friendly interface allows employees with a variety of different skills sets to speak the same language, so to speak. With Plug and Score, even junior staff will get the same results much faster and easier. Plug n Score is so intuitive there is no need to read manuals or take formal classes. This will be beneficial for large companies wanting software that does not force them to change their IT infrastructure or reconfigure their business process. This will create flexibility for senior loan officers to work with various clients of special needs or requirements. Automating the information flow will create efficiencies that can be seen at every organizational level.

The software helps create scorecards which are a great tool to help automate the whole loan process. A customer’s data is entered into the Plug and Score software and a specific scorecard is created with a corresponding total score. The criteria and total design of the scorecard is created and tailored to each individual bank. The scorecard assigns points to a potential customer based on the banks weighted preference for different risk categories. The type of risk categories varies from organization to organization. Some of the more common risk categories are gender, age, marital status, career history, and of course credit score. Most lay individuals overrate or over rely on the importance of pure credit score. While credit score has the ability to make or break you while applying for a loan, these other criteria are very important as well.

While most software that use score cards require score card maintenance Plug n Score allows users to easily update credit scorecards. This helps banks stay current with changing market conditions or new types of customers. Updating is simple with features built in to the software. As changes are made to the scorecard visualized results are shown to ensure accuracy. The reduction of time spent in scorecard maintenance translates into reduced labor cost and a more efficient loan process for the organization. These features gives Plug n Score the ability to adapt to new market conditions and to continue to meet an organizations various changing needs in regards to loan origination and approvals.

One of the most obvious benefits of the Plug and Score software is the accessibility the score card system can provide to non-expert employees. Actually creating the score card itself is very easy and requires very little training. Employees can first enter customer information into a standard excel spreadsheet in a specific format. From this point the employee uploads the information from the excel document and any other information gathered from the individual into the Plug and Score software. Next, the Plug & Score software analysis all of the uploaded information, assigns the candidate a score, and then classifies the candidate with all other uploaded loan candidates. This effectively means that loan officers can have every single potential loan candidate on one list in front of them, listed from good credit risk down to bad credit risk. The loan officer can also use different sorting options to list the candidates based on various criteria, for example creating a display score range between score 600 to 650. All the loan officer simply has to do is review the information and look at the repayment probability percentage and determine which people are appropriate for loan approval.

This software also helps create automated systems that can accept a credit application in seconds. To make automatic decision the bank needs to define score cut-offs that will divide good customers from bad customers. This system helps reduce inaccurate loan decisions and the results are fewer bad debts and higher approval rates. Having some sort of automated system like this helps cut down tremendously on the labor cost of loan origination. Once the information is received the loan originators utilize the information review it for accuracy and pass it down for loan approval. Not only does it help with loan origination but it also helps in fraud detection by creating a score of the probability that an application is fraudulent before the account is approved. This probability is important as it can be an indicator of possible further in-depth analysis of each applicant before approval. Detection of fraudulent applicants is very important as the increase of identity theft and fraud has risen over the years.

Scoring technologies can also be used as an objective risk management tool; which help ensure centralized, uniform, more consistent and reliable decision management across an organization. Scoring is the most widely used in lending for all stages of a credit life-cycle, from borrower acquisition to customer management to debt collection and recovery. Scores are important as they are used to rate customers according to the probability of business event or customer action, such as timely credit return, risk of default, retention or cross-sale. With scored customers you can automatically take profitable decisions, such as accept/reject credit application, increase/decrease credit limit, send/hold cross-sale offer, etc. Software like this was created to help reduce decision time, and help streamline credit operations. The most important part of this banking software is that it helps reduce human decision error and obsolete subjectivity biases that as humans are prone to. Essential software like this not only helps speed along the process, but also helps communication with customers behind on their payments and helps give them personalized treatment which increases retention, possible referrals for new clients, and best of all bottom line profits.

The Plug and Score software package supports the loan officer’s information needs as an information collector and packager. As previously stated, one of the main priorities of a loan officer is to gather and package information. They gather this information from potential loan candidates, package it, and finally send it to credit analyst. From that point a credit analyst makes recommendations on a loan structure based on his analysis and passes it on to a committee or personal to decide to approve the loan. Plug and Score enhances this process by providing a standardized language that is easy to understand by all employees. Plug and Score also greatly reduces the initial quantitative duties required by an analyst. Credit analysts are still necessary in a mortgage department because they bring expert intuition along with the scorecard that Plug and Score gives. Experienced credit analyst can often times make judgment calls on variables that computer software programs cannot detect. However, the software may allow a mortgage department to reduce the responsibilities of credit analyst. A loan officer can instantly have financial information that may have taken week or more by traditional methods using the Plug and Score system.

While Plug n Score is great software to utilize in the banking industry there are other software that a company can utilize to facilitate their banking needs. One of these alternatives created by Calyx Software called Point. This software is awesome it allows for step by step methods of origination or the originator can go directly to any form they want. Data does not have to be entered it is simply carried over to the next form this is a great feature as it helps reduce time and cost. While other software might not accommodate many types of loans Point does it eliminates the need to have multiple software applications to just complete a certain type of loan. While Point is great software it does have many limitations versus Plug and Score. First Point deals mainly with just mortgage loans while it does have the ability to help in the loan process it mainly specializes in mortgage loan origination. Furthermore the software does not feel as intuitive as the Plug n Score software loan originators must have formal training in order to understand some of the reports that are generated by the software. Overall Point is a good system that meets the needs of many organizations but I believe it is limited by its niche in regards to focusing on mortgage loans origination. Plug n Score is a much more flexible system that can be used in various types of loans.

CFS Software is another type of alterative loan software that is currently used in about 500 or more companies in about 17 states one of which is Texas, and has been used since June 1986. Some of the software’s operations include, Extensive Financial Reports Delinquency Statistics, Listings & Activity Credit Report Retrieval, Audit All Activity. This software helps Eliminates Fraud, Automated Daily Call Lists, and much more. CFS states that it's, "Software is a strong business able to provide your company with stable, consistent technology services.” They also have an online staff that will help the officer with any questions and or difficulties with the loan software. This software is a much simple and also not as much info on the product so that the operator is more aware of how to use it. Plug and score seems to be a better way to go because of the fact that there is just not as much information involved in CFS software and plug and score is more step by step.

Bibliography

Literally 100% of the information related to banking and the position and responsibilities of a loan officer where obtain through three separate personal interviews with one industry veteran. Mr. Cody Cunningham works 3W Inc, an independent bank consulting firm, located out of Dallas, TX. Mr. Cunningham regularly consults for Wells Fargo, Chase, and Bank of America.

Cunningham, Cody. Personal Interview. February 12, 2011; March 13, 2011; March 27, 2011