Adverse action notice
The written notice a lender sends when it declines an application or offers less favorable terms, stating the specific reasons. Every failing rule on the file is a candidate reason, which is why a review that stops at the first one leaves the notice incomplete.
Automated decisioning
The decision engine inside a loan origination system approving or declining clear applications without a person, on configured rules and usually a score. Files it cannot decide are referred to an underwriter.
Collateral value
What the vehicle or property securing the loan is worth, from a valuation guide or an appraisal. The policy should say which value a rule means (retail, trade-in, or wholesale), because the same loan has a different LTV against each.
Compensating factor
A strength in the file that an underwriter weighs against a rule the file fails: a long membership, a strong co-signer, a large down payment. Named in the record of an exception.
Counteroffer
An offer on different terms than the member asked for, usually to bring the loan within policy: a lower amount, a shorter term, a co-signer, or a condition. Also called a counter.
Credit model
Software that predicts how likely an applicant is to repay, from patterns across many past loans. It returns a score, a grade, or a probability. Often sold as AI underwriting. How it differs from a rules engine.
Credit union service organization (CUSO)
A company owned by one or more credit unions that provides services to them, including outsourced underwriting desks that apply many credit unions’ policies. Sidecar for outsourced desks.
Debt-to-income (DTI)
The applicant’s monthly debt payments, including the new loan, divided by gross monthly income. Policies set a maximum, often with a different limit by credit tier.
Exception (policy exception)
A loan approved on purpose, by someone with the authority, although it fails a rule in the policy. Distinct from a miss, which is a failing rule nobody checked. How to track exceptions.
Indirect lending
Loans originated through a dealer rather than at the credit union, with the dealer submitting the application. The volume arrives in dealer hours, which is where Saturday comes from.
Lending policy
The document the board approves that sets who the credit union lends to, on what terms, with what limits, and with what room for exceptions. Every rule comes from it.
Loan origination system (LOS)
The system that takes applications, pulls credit, applies automated decisioning, and books the loan. A rules engine of the kind described on this site works beside it, read-only.
Loan-to-value (LTV)
The loan amount divided by the collateral value. The policy sets a maximum by collateral type and condition. A 90% limit on a $27,500 vehicle allows $24,750.
Manual review (referred file)
An application the decision engine could not approve or decline on its own, sent to an underwriter. The queue that underwriting automation is for.
Payment-to-income (PTI)
The new loan’s monthly payment divided by gross monthly income. Used alongside DTI, especially in auto lending.
Policy revision
A dated version of the lending policy. Every file should record which revision it was checked against. When the policy changes.
Proof of income
The documents that verify stated income: paystubs, a tax return, bank statements. A rule the file cannot pass until the document is in it.
Risk-based pricing
Setting the rate by the applicant’s credit tier. A rule can check that the rate matches the tier. It cannot set the tier.
Rules engine
Software that holds the lending policy as rules and checks each application against all of them, returning a result for every rule with the value it checked. Deterministic; it does not predict. What a lending rules engine is.
Stipulation (stip)
A condition an approval depends on: proof of income, proof of insurance, a payoff letter. The approval stands only when the stips are met.
Term
The length of the loan in months. Policies set a maximum term by collateral type, age, and mileage.
Underwriter
The person who reviews a referred file and decides. Underwriting automation changes what they start from, not who decides.
Underwriting automation
Having every rule in the lending policy checked on every file before an underwriter sees it, with the result for each rule shown. Not the same as automated decisioning. What it means for a credit union.
Work shown
A result that names the rule, the value it checked, and the limit, so a decision can be traced to a sentence in the policy by the underwriter, in the member’s notice, by the board, and by the examiner.