By Ray Birch
CHICAGO—The new “digital lifestyle” and remote work during the pandemic are leading to a surge in recreational vehicle (RV) loans, according to one lender that has been in the business for more than ten years.
The $13.5-billion Alliant CU reports its recreational vehicle loan business has grown 28% since 2019, taking the portfolio to $1.3 billion. Charles Krawitz, VP-commercial real estate lending and loan trading, said the portfolio would be even larger, but the credit union has been actively selling participations to a growing number of credit unions that want the loans that come with high-credit-score borrowers and a strong rate of return.
“We've had consistent portfolio growth since 2015,” said Krawitz. “There has been a continued significant uptick in demand for RV loans. You have more digital nomads today—people who have been told that they no longer have to go into an office every day, and they can just work wherever they are. They just need to get the work done, so an RV becomes a very appealing proposition for this new group.”
Older Americans, a large demographic in the United States as Baby Boomers continue to retire, are among those whose interest in owning an RV is growing, noted Krawitz.
“And people who want to travel now are apprehensive about COVID,” said Krawitz. “RVs allow people to take vacations and bring their hotel along with them. And, I don't think that even with vaccines that anytime soon we will be seeing people stop being extremely sensitive to potential health implications of travel.”
Interest is Clear
That interest in RVs was clear in the third quarter of 2020 when Alliant originated $168 million in recreational vehicle loans, 44% higher than the third quarter of 2019. Krawitz said adding the loans are a good risk and offer a greater rate of return than other loans.
Charles Krawitz
“The weighted average credit score for our RV borrowers is over 760. That's a very strong number,” said Krawitz. “The average loan balance is about $64,000, and the weighted average coupon is about 6.5%. On a risk-adjusted basis, RV loans right now produce 150 basis points above auto loans. This is a good line of business.”
While there is renewed interest in recreational vehicles, the interest in RV lending at Alliant began in 2008.
“One of our ambitious branch managers went looking for business and was able to source some RV loans, and that kind of caught fire in the organization,” said Krawitz, who noted Alliant now has shed its bricks and mortar for digital delivery. “The branch manager said to us, ‘Wow, these offer great, risk-adjusted returns.’ We then began to roll the loans out more broadly. But it wasn't until 2013 that we started really deepening our originations in the indirect channels here, and right now I believe 93% of our RV business is on indirect basis, 7% is direct with our membership.”
The 2021 Target
The credit union is targeting more than $600 million in production for 2021 on its RV portfolio, following $580 million loans in 2020. The RV Industry Association projects RV shipments will climb nearly 20% in 2021, eclipsing 500,000 units. Alliant sold $64.5 million of recreational vehicle loans to other credit unions during 2020.
“We're happy to have these loans on our balance sheet, and they are very strong, which is the reason why we're in the market to sell RV loans,” said Krawitz. “Selling participations expands our balance sheet capacity, and our ability to serve more members with these loans. These loans have really grabbed the attention of other credit unions. They like the borrowers’ credit scores and the risk-adjusted return.”
Advice for Other CUs
Krawitz advised that credit unions interested in entering the RV lending space on their own should first buy a pool of participations to learn more about how this paper performs.
“Do that and you get to experience these loans firsthand, rather than just rushing into the origination channel yourself,” he said. “There's a decent number of lessons you will learn. Buy pools from multiple originators to see if there's any performance differences.”
He said lenders will likely find some geographic concentrations of RV loans don't perform as well as others.
“I can tell you, from a geography perspective, we source from 250 dealers across the country,” Krawitz explained. “We're definitely heavy in the Sun Belt and Central Midwest, with our top states being Florida, Texas, Arizona, Colorado and Michigan.”
Following Own Advice
Krawitz said Alliant is about to enter the solar lending market and, following its own advice, first bought solar loan participations to better understand the product.
“We're about purchase two pools of solar loans from different credit unions, and we are looking to experience firsthand the ins and outs of solar loans before we team up with an originator and offer them ourselves,” he said.