Overview
PrecisionLender provides a great deal of flexibility in establishing Origination Channels and Servicing Channels, including stratification by loan amount, to capture associated origination and servicing expenses in order to calibrate overall assumptions.
In this Article
- How Should I Set Up Origination Channels?
- Origination Channels
- Creating Origination Channels
- Disabling Origination Channels
How Should I Set Up Origination Channels?
PrecisionLender has default settings for Origination Expenses that many of our clients choose to use.
- An initial provisioning of PrecisionLender will have the most recently available assumptions.
- You can use the "Replace With" functionality detailed in this article to apply those assumptions.
- For more information on this study, please see: Current Originating and Servicing Cost Guidance (you must have login access to view this study).
However, since some institutions may have accounting functions or processes that have already established methodologies for Activity Based Cost Accounting (ABC) or standard FAS91 approaches to establishing these cost assumptions, we encourage you to use your internal assumptions, if this makes the most sense in aligning with other areas of the bank in terms of analytics and reporting, and if it also fits well with loan pricing and profitability management.
Origination Channels
The Origination Channels provide the capability to establish upfront origination expenses associated with originating a new loan. The recommended approach is to allocate the pro-rated direct expenses associated with originating the next incremental loan put on the books. For example: Pro-rated Originator, Processor, Operations expenses related to loan origination.
- Enable
- If unchecked, the Origination Channels defined in the product setup cannot be adjusted on the Opportunity Screen.
- If checked, lenders will see the Custom option and be allowed to customize the available Origination Channels on the Opportunity Screen.
Note
The channel Custom will not be listed in the product setup. It will only be visible on the Opportunity Screen. - Default
- The origination channel with the checked box will be the channel that is selected for this product when a lender creates a new loan.
- Name
- The name of the origination channel. If you have Relationship Awareness the names of the origination channels must be same for all commercial loan products.
- Target Adjustment
- The Target will be adjusted by this amount when this origination channel is selected.
- Amount
- Loan Amount or Commitment that the related origination expense is valid for. More Tiers can be added by clicking the blue down arrow button at the bottom of this column.
- Origination Expense
- Expenses associated with originating a loan in the associated Amount Tier.
- Percent of Amount
- Allows you to set a percentage of amount for the associated tier.
- Percent of Fees
- Allows you to set a percentage of the fees for the associated tier.
Note
If values are entered in multiple fields for an amount tier, the origination expense will equal the total of all those values. For example, if there is both an origination expense and percent of amount, the origination expense of the loan will equal the origination expense + the % of the loan amount.Creating Origination Channels
There are 3 main ways to create Origination Channels:
- Insert PrecisionLender Standard Origination Channels
- Copy Origination Channels From Another Product
- Create Origination Channels Manually
Insert PrecisionLender Standard Origination Channels
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From the Products Pane of the Administration Section, select the name of the product that you wish to add or edit origination channels for.
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Select Edit in the top left corner.
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Select Origination Channels in the menu at the top of the page.
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Select Replace With... Please note that following these steps will replace all of the origination channels that are currently available with this product.
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Select the 'Standard Set' and select the set of origination channels you would like to populate with, then click Next.
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If you'd like to apply a factor to the expense amounts, enter the percentage in the field.
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Select Finish. All origination channels will be replaced with the set you selected.
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Remember to Save to keep the changes you have made.
Pro Tips
Additionally, you may want to consider:
- How your efficiency ratio compares to the standard and make percentage adjustments based on this.
- Consider the bank’s commitment to a new or fledgling Line of Business that may not have scaled in volume. Use the replace with function to adjust the cost load appropriately for your efforts.
- Consider aligning balance stratification's levels with your managerial approval levels and policies.
Copy Origination Channels From Another Product
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Once origination channels have been created for one product, they can be copied from one product to another.
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From the Products Pane of the Administration Section, select the name of the product that you wish to add or edit origination channels for.
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Select Edit in the top left corner.
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Select Origination Channels in the menu at the top of the page.
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Select Replace With... Please note that following these steps will replace all of the origination channels that are currently available with this product.
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Select the 'Other Products' and select the product you would like to populate with, then click Next.
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If you'd like to apply a factor to the expense amounts, enter the percentage in the field.
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Select Finish. All origination channels will be replaced with the set you selected.
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Remember to Save to keep the changes you have made
Create Origination Channels Manually
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From the Products Pane of the Administration Section, click on the name of the product that you wish to add or edit origination channels for.
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Select Edit in the top left corner.
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Select Origination Channels in the menu at the top of the page.
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Select Add New Origination Channel.
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Enter the name of the channel, Target ROE adjustments if applicable, the Origination Expense and/or Percent of Amount and/or Percent of fees. If costs vary by commitment amount, select Add Expense Tier to enter the commitment amount the cost will be applicable for.
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Remember to Save to keep the changes you have made
Disabling Origination Channels
Within PrecisionLender, you can disable Origination Channels so that lenders will not see this field when pricing a new Opportunity. This is done by product within the Administration section of PrecisionLender.
Note
Disabling Origination Channels will affect PrecisionLender’s engine calculations. Origination Channels are particularly important, as they represent direct costs to the bank for originating the loan. If you are unsure about disabling these, please contact Support.
How to Disable Origination Channels
Disabling the Origination Channels field from the Pricing Screen is configured per product. To do so, navigate to the Administration section of PrecisionLender and select ‘Products’ from the left-hand menu. Select the Product you wish to disable Origination Channels on. Once the Product Assumptions screen is open, select ‘Edit’ in the top left corner. You can then either scroll down to the Origination Channels section or select ‘Origination Channels’ from the header. Remove all but one Origination Channel and uncheck the box next to ‘% of fees, % of amount, and general expense customization on the Opportunity”. Scroll back to the top of the page and select ‘Save’. If you’d like to apply this to every product, you can utilize the Propagate Icon to do so.
Note
Changing to the new origination levels may result in significant changes to actual ROEs. We recommend establishing a few test loan products ‒ by splitting out testing regions in your chosen products that include these new costs ‒ to determine the difference in ROEs under the recent and the newly-recommended defaults. Consequently, these results may suggest adjustments to targets are needed. Alternate Pricing Regions in PrecisionLender enables you to dynamically change your pricing region directly on the opportunity screen. For step-by-step instructions on how to create a test region, break out existing products for testing, and switch to those test regions when desired, please follow this guide.