Underwriting can be a tough aspect of an indirect lending program to optimize and now is the time to evaluate the efficiency and performance of yours. Three of the most common mistakes lenders make when operating their indirect lending programs include:
- Too many rules: The underwriting process is often governed by a substantial number of rules or decisioning parameters. Having too many makes it very hard to measure the effectiveness of a single rule and foresee any associated risk. An optimization of the process could be very productive in both lowering the risk and increasing performance.
- Cascade approaches: It’s also common for the design of the process to be structured so that multiple cascades of rules are involved. Just like the mistake of having too many rules, this one creates difficulties in understanding the success of your underwriting process. Moreover, this oversight often leads to lower flexibility in process changes and increased maintenance costs.
- Lack of risk models: For auto-decisioning to be ideal, it’s essential to have solid statistical models to predict risk. Estimating the cost associated with risk and setting cut-offs on both sides (approvals and declines) is a significant milestone. Cut-offs must be based on the strategic business goals and risk appetites of the institution. But to make this happen, it’s necessary to have solid statistical measures in place.
These aren’t the only problems that can hold back your program, but they are the most common. Both CRIF Achieve and CRIF Select provide consulting services to ensure your indirect lending program avoids these everyday mistakes.
For more information on how to ensure your underwriting process is giving you the most benefit, please click the button below to download our “Indirect Lending Top 10 Checklist: Underwriting.”
