The coronavirus pandemic has driven interest rates to the lowest level on record — but it comes with caveats for marine dealers lining up financing for customers.
One might logically assume the low rates would be triggering a big uptick in mortgage refinancing, equity loans and easier boat loans. But that’s not necessarily what’s happening. A combination of factors has impacted the overall financing scene and lending for major purchases of durable hard goods, including boat loans.
Just what actions are lenders taking these days in light of the economic shock we’re all experiencing from covid-19?
Overall, loan availability has actually tightened. Lenders have imposed tougher income, credit-score and down-payment conditions and some may have even dropped certain loan types altogether.
“These changes are a product of lenders altering and managing their underwriting guidelines,” explains Jim Coburn, Coburn & Associates, who also serves secretary and treasurer of the Michigan Boating Industries Association. “When the coronavirus hit, like everyone else, lenders were suddenly thrown into uncharted waters,”
Back in March, lenders became fearful of a projected, rapid loan performance deterioration in their consumer portfolios, specifically in the auto, RV, credit card, home equity and boat sectors. On top of this, the CARES Act provided homeowners with the ability to suspend mortgage payments for up to a year, essentially saddling lenders with the burden.
“[Lenders] were rapidly facing waves of new requirements and demands coming from congressional responses and regulatory actions. So, they did what all other smart businesses would do. They donned life jackets and moved into protection mode,” Coburn says.
The credit underwriting changes or modifications dealers may now be experiencing could include: limiting out-of-state loans or limiting originations in certain U.S. regions, thus shrinking their boat lending footprint; increasing down payments; increased interest rates for lower credit scores and eliminating programs altogether for certain lower credit score tiers; possible limited lending for certain boat products, types or age of the collateral; implementing new, more robust procedures to verify employment; and, verification of a consumer’s assets and accounts.
Lenders expected a big drop in loan applications. To avoid major layoffs, many redeployed personnel from their marine/RV lending departments to other areas to handle demands of the rapid-fire federal, state and local loan programs. The result: many lenders have acknowledged they’re slower than normal in reviewing and providing timely customer service to dealers these days.
In addition, dealers are experiencing a harder time structuring deals due to the more stringent underwriting guidelines.
Even in this context, the news is good. Since as far back as mid-April, some lenders have been indicating surprise at the volume of incoming boat loan applications looking for decision.
“By the end of April, application counts were clearly on the rise at those lenders who stayed with the boat loan business or possessed competitive rate and underwriting programs,” reports Colburn. “In fact, the major boat loan bankers are now reporting a very brisk business with application counts meeting or exceeding their original business plans or expectations — versus the same few weeks’ period of last year.”
Moreover, all of the major consumer lending and floor plan lenders are reportedly still in the game, albeit two players have curtailed their boat loan programs. And, floor plan lenders have reportedly been working with their dealers since mid-March to ease curtailments and other payment types.
Finally, the National Marine Lenders Association is moving toward endorsement of full e-signature and e-documentation in the boat loan industry at banks, service companies/finance brokers and dealerships. The e-signature has been federally approved with guidelines/rules since 2000.
“This would be good for the industry,” says Coburn, an e-signature advocate. “Too bad it’s not yet fully in place during this complicated economic time.”