Loan underwriting without loans

Activities, workflows, and views in a software solution all revolve around entities.

Since most business processes work with multiple entities, software solutions are usually easier to design around an aggregate.

An aggregate is an entity that ties to the rest of the related entities and facilitates access to them.

Why does it matter?

The aggregate around which you design your software solution is a massive variable in what you get.

Pick an aggregate aligned with the business domain and the design flows. You don’t have to think hard. Pieces fall into place. Chaos self-organises into a natural order.

Pick an aggregate that isn’t aligned with the bussiness domain, and design feels like pulling a tooth. Every decision requires a great deal of effort. Nothing feels intuitive. The result is often a jumbled collection of disconnected parts, lacking context and coherence.

So, choosing the right aggregate for a software solution is crucial.

But in credit underwriting software, that choice isn’t always as straightforward as it seems from an engineering perspective.

“Loan” is often the first thing that comes to mind when considering an aggregate for loan underwriting software.

After all, loan underwriting is part of the loan origination software.

And at first glance, it makes sense. Until you try to design a solution around it.

The problem stems from the fact that there’s no loan yet during underwriting.

A loan is an actual financial agreement that exists only after approval and signing.

A loan doesn’t exist until it’s signed.

Since loans don’t exist, trying to implement business requirements around a loan entity is, again, like pulling a tooth.

So what does get underwritten, if not a Loan?

Loan application.

Before a loan exists, what underwriters work with is a loan application.

A loan application, in other words, is a request from a borrower for a loan.

It isn’t a loan yet, but a loan request.

Underwriters evaluate the loan application to determine if it meets the lender’s risk criteria.

Then, either approve or decline the loan application.

Again, underwriters don’t approve or decline a loan.

Once the loan application is approved, the loan will be created in downstream processes.

I found that designing a credit underwriting solution around a loan application is more intuitive.

The underwriting workflow makes sense.

The entities you work with all have easy paths to them, like applicants, credit reports and credit offers.

At this point, my aggregate of choice for loan underwriting software is a loan application.

That's it for today.

I hope this gave you some useful ideas for building better lending software.

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