Cash will grease loan deals in the crunch

The great marine financing debate simmering at the end of calendar year 2008 had the industry divided into two primary camps. Marine bankers claimed adequate retail funding — though heightened standards — for consumers and reported that very few loans were coming through to consider. Sellers complained prospective qualified buyers couldn’t get loans even though they presented them to numerous lenders —fueling the feeling that credit markets were frozen. There is some validity in each of these readings.
“While there are fewer players out there making loans, there is plenty of boat loan money available for qualified borrowers,” says Don Parkhurst, Marine & RV Finance Group Manager for SunTrust Bank. “Our bank, Bank of America, M & T, U.S. Bank, Bank of the West, Provident Bank, BB&T, and CGI North America [subsidiary of France’s Society General] are all still active.” He adds that funding is also still available at financial service companies, community banks and credit unions.
In fact, credit markets appeared to be thawing somewhat by mid-December last year. “We started seeing cost of funds dropping near year-end which usually leads to lower interest rates for borrowers,” Parkhurst says. At that time mortgage rates were 5.0 percent for 30-year fixed loans, down from 6.25 percent only several months earlier.
“At SunTrust, we have not changed our qualification standards significantly; they are no more stringent than they were back in 2005—2006,” Parkhurst points out. At his bank, current standards are 15-to 20-percent down payments, debt-to-income ratio in the 40-to 50-percent range, and good credit with scores at 680-plus. Other lenders may be somewhat tougher or more lenient, but the qualifications do not vary widely.
Bill Otto, formerly of Key Recreation Lending, now owner of Lake Effect Financial Services LLC and agent for Just Boat Loans, agrees with Parkhurst that there’s money for retail loans. “The test of how much funding is available will come when demand turns up and more loans are presented,” Otto says. “When that happens, I’m confident we’ll have enough sources and adequate funding to handle it with competitive rates and terms.”
Otto agrees lending guidelines are back where they were before the credit troubles began, but doesn’t feel this will impact traditional deals.
From a long-view perspective, Don Mattocks, founding president of the National Marine Bankers Association who spent 40 years in the marine and auto credit industry, points to acceptance of high risk as the wrench thrown at the credit supply engine. “We were punished if we made too many risky loans,” Mattocks says. “I saw the credit pendulum swing many times but never made a loan to anyone that I thought couldn’t pay. Even in good times, people’s circumstances changed through divorce, sickness, lost jobs, etc. – pushing them into insolvency, then we’d repo the car or boat. But Wall Street geniuses wrapped and swapped those risks until you did not know they were there. The result: today’s credit crunch.”
Parkhurst concurs the pendulum has swung back to less risk. “It is true that some of the banks that made crazy loans to borrowers that couldn’t afford the boats are no longer in business. This type of lender is not coming back any time soon and sellers need to be more realistic about trying to find loans for marginal customers. By this I mean customers with less than 15 percent down payment or credit scores below 640.”
Everyone seems to agree that prospects bringing more cash – or higher down payments – to the table have a better chance of getting a loan. But where will the cash come from? Investors able to exit stocks in the third quarter of ’08 have mountains of it according to brokerages and banks who witnessed the rush to safety from equities. With the unprecedented interest in selling boats and remarkable values now offered, the industry message could be to take some of that currency and turn it into an investment in on-water fun.
Another assist announced in December ’08 by The Federal Reserve was a plan to purchase $200 billion in securities backed by different types of debt, including credit card loans, auto loans, student loans and loans to small businesses. These loans were cited as the ones that “froze” and often carried higher interest rates. This cash infusion should have a positive spillover effect on credit available to boat buyers as well as improving the perception that installment loan availability is growing.
By simply paying down debt, the cash-strapped will also be improving overall credit ratings and ability to borrow. When the economy turns, they’ll be better positioned to qualify with higher cash down payments and more favorable boat loan rates and terms.

Greg Proteau writes about boating and marine finance industry trends, companies, people and ideas. He served as director of communications and PR for the NMMA and was the founding executive director of the National Marine Bankers Association. Currently he is a consultant to manufacturers, marketing agencies, service providers and organizations within and outside the marine sector and serves as executive director of Boating Writers International.