There are definitive strategies that banks can utilize to avoid the many risks associated with slowed loan closings. Following these strategies may, in turn, also allow banks to earn higher returns on credit and generate positive customer rapport as a result.
Today’s world is filled to the brim with reasons for quick loan closings. From intense competition, rising federal interest rates, to overall market uncertainty, the speed at which banks close loans is crucial to the financial stability of the banks and lenders, as well as to the borrowers and appraisers involved. Here are four efficient ways banks can increase closing speed, and ultimately reduce the risks associated with loan closings.
1. Provide a Written Record
Borrowers and decision-makers should be given, in writing, an official document explaining all of the steps involved in the loan closing process as well as the given timeframe required for this process to commence. Included in this document should be a timeline for additional appraisers, as well as the primary borrowers, so that all parties are aware of the process and what it involves. By spelling out the steps exactly, everyone involved is more likely to be on the same page, avoiding potential miscommunications or oversights that could interfere with the loan closing later on.
2. Get Borrower Signatures and Gain Stability
Present this detailed written timeline to the decision-makers and get their signatures indicating their agreement to the process and timeline. Although this written record would not be considered a binding contract, having the respective borrowers actively agree to the timeline and the funding date will, in many cases, morally persuade them to commit to the signed agreement. Steps one and two can both be completed as part of the online loan process which integrates speed as its fundamental principle. For more online loan management, check out MSR valuation software, and manage your banking in the cloud.
3. Obtain (Some) Financial Control
Banks can maintain some degree of financial leverage by including a loan origination fee and making it one that is non-refundable once the closing date passes. Although not all banks use loan origination fees, most include some type of fee, and this specific style makes it more difficult for borrowers to negotiate after-the-fact, reducing potential lag in closing speed. An extension may be ultimately agreed upon, but, having some initial control over the situation will help to speed up the closing process, and may avoid an extension altogether. The idea of sticking to a loan return date is how same-day, no-credit-check loans maintain their security. For emergency loan options, consider payday loans.
4. Avoid Fixed Loans in Advance
Be wary of agreeing to fixed loan rates prior to the closing date. Banks that agree to advanced fixed rates are at greater risk of rate increase and/or rate decrease, both of which may cause the loan not to close. Although even in these two scenarios it is still possible for the loan to close, agreeing to a fixed loan rate increases the chances that the loan will not close. Banks are more likely to lose out in all outcomes other than when rates decrease, and the borrower decides to take the loan due to insensitive rates. While banks are advised to reject these asks, if you are a borrower considering asking for a fixed loan in advance, be sure to calculate your fixed interest rate so you can know what to expect.
In today’s fast-paced world, loans with faster closings lead to a greater percentage of positive outcomes for both community banks and their customers. Adopting the above strategic changes is a cost-free and productive way for banks and lenders to encourage faster closing speeds without dramatically changing corporate protocols or asking too much of their customers. Reducing the risks associated with loan closings is ultimately less about appeasing the customer as it is securing a date.