Ultimate Underwriting Guide: Manual or Automated? Choose with Confidence
Although underwriting for credit unions has long been a manual process, it is also another area of operations that has been impacted recently by automation. If you're trying to determine whether members have the ability to pay back a loan under rigid rules and requirements, what better way to tell than via a tech-based solution that is operating under very precise parameters?
Despite the rise of automation in underwriting processes, there are still scenarios where manual underwriting is the optimal approach, especially in the context of credit unions. Knowing when to utilize manual versus automated underwriting is crucial in order to make the most of both methods.
When Manual Underwriting is Still Appropriate
As a rule of thumb, manual underwriting best practices should still be used when a situation requires that "human" element. By its nature, manual underwriting is slower than its automated counterpart. However, it also opens things up to more scrutiny which is sometimes necessary.
A human underwriter for a credit union may consider certain elements of a loan application too risky in ways that the automatic approval process might not catch. Others may base their decision on more information, like a member's other strengths and weaknesses. If an applicant has a non-traditional income or poor credit history, for example, manual underwriting has a better chance of getting them approved (if that's what should happen) than an automatic check that will largely write them off.
Yes, this process takes longer, but it also typically ends with results that are considered to be more fair. While not every loan application requires this close of an inspection, some absolutely will and should still be treated accordingly.
When Automated Underwriting Makes the Most Sense
Automated underwriting, on the other hand, should be used in situations where it can provide legitimate value to both members and credit union employees. It will likely be a major benefit in the vast majority of situations outside of the ones specified above.
Does your credit union need to be able to handle numerous applications at any given time? Automated underwriting can help get that done. Do they need to make decisions faster than human employees can manage without worrying about issues like human error? Automated underwriting is the answer.
One of the most important things to understand about underwriting--and about digital lending for credit unions in general--is that not every process needs to be automated across the board. Yes, it's true that in the lion's share of situations, automation will increase speed, efficiency, quality, and more.
While automated underwriting can greatly enhance the lending process, it's important to remember that it doesn't replace human employees altogether. The goal is to support and empower credit union staff, not render them obsolete. That's why we've developed a lending service tailored to meet the unique needs of your credit union, while still allowing for strategic manual processes.
At FLEX, we've taken the liberty of authoring a helpful digital guide that talks in a bit more detail about this very topic. If you're interested in carrying on this conversation within the context of your own organization, click the button below to get started.