CHICAGO-Looking for a reason to get into non-auto vehicle lending? How about a 56% increase in RV ownership over the last 10 years?
Greg Worthern, VP of lending at 1st MidAmerica CU in St. Louis, Ill., offered that statistic as part of a panel on non-auto vehicle lending when he spoke here recently as part of CU Direct's (CUDL) Lending Conference. Worthern's comments on the success of RV lending echoed those of Jade Beckman of Mountain America CU in West Jordan, Utah, who shared a similar success story from his own credit union (Credit Union Journal, June 4, 2012).
With $493 million in assets and 44,000 members, 1st MidAmerica feels it has good reason to be in the RV market: along with the significant increase in ownership over the last decade, one-in-nine vehicle-owning households (approximately 8.9 million households) owns an RV. The typical owner is 49 years old, married, owns their home and has an average household annual income of $68,000 (compared to the national average of just over $46,000). Additionally, Baby Boomers account for the largest segment of ownership and are poised to be the fastest-growing segment of RV owners.
Continuing the business case, Worthern pointed out that competition for RV loans isn't as tough as it is for indirect auto lending, and RV loans carry better rates and yields and larger loan amounts than auto loans. Borrowers also tend to be more stable and well-established, and Worthern emphasized that RV lending didn't see the same levels of delinquencies or chargeoffs associated with mortgages and commercial lending during the recession.
Still, Worthern pointed out that "you're going to get repos, guaranteed," but added the caveat that "half of our RVs come back to us due to death." When vehicles are repossessed, 1st MidAmerica often keeps them on-site rather than immediately sending them back to the dealer. Between 20% and 30% of repossessed RVs get re-sold at the branch, because consumers see them sitting outside and stop in to ask about them, said Worthern.
Worthern also pointed out that RV deals are not as rushed as auto deals, and the average person visits an RV dealership five times before making a purchase. Moreover, consumers don't balk at rates of 7% to 9% on RVs.
1st MidAmerica's RV portfolio is its second-most profitable behind its Visa card portfolio, with a weighted yield of 6.899%. Charge-offs are 0.43% and delinquencies run higher (1.2%) due to larger loan amounts, but the CU limits its portfolio to 7% of all loans. Additionally, it doesn't take C or D paper and will only accept a maximum debt-to-income ratio of 40%.
The Underwriting Criteria
1st MidAmerica is also strict on indirect versus direct lending for RVs, and any loan amount over $75,000 must go direct. Drivable units are also ineligible for indirect lending. Applicants must have at least three years on the job and proof of income is required for all new members, as well as for all current members without loan experience at the CU.
Staff training is also crucial, and Worthern sends his staff to RV shows and dealerships to make sure they understand the details of the vehicles they are financing. There's a big difference between a fifth-wheel, a travel trailer or a hybrid RV, he noted, and staff that can understand that-and, even better, make presentations to the rest of the CU-will be better prepared to serve members looking for those loans.