Seven Answers to Seven Common Questions About The Boat Lending Market
As the boating market revives after the economic meltdown of 2007 to 2009, banks and other lending institutions have started to take another look at serving or expanding loan offerings to boat buyers. A number of common questions are being asked by those researching opportunities in the market. High-line answers to these common questions, are provided below by NMBA members:
Q: How are marine lenders setting collateral values on new and used boats as the market recovers?
A: This has always been, in strong and weak markets, a process involving art and science. Lenders typically start by checking data maintained by price guide publishers then turn to additional sources on the Internet such as Yacht World and Soldboats.com. On more sophisticated vessels, lenders are using the expertise of surveyors – for both condition and value – and maintaining “sounding board” contact for pricing input by dealers, brokers and manufacturers. The NMBA’s Annual Marine Lending Workshop includes a session on this topic where it is discussed in detail
Q: Has lien perfection for boat contracts changed significantly in recent years?
A: No. In most major boating states, a boat title secures the loan on small boats. On larger vessels (usually 27-feet or greater where boats meet the “5 Net Ton” requirement), a federal ship’s mortgage can be used to secure the loan. Documentation specialists can help in either case. Industry experts including maritime attorneys and the NMBA are currently working with states to help standardize the lien perfection process.
Q: Is insurance coverage continuing to be readily available for most boats?
A: Yes, by highly-rated underwriters. With a lower incidence of hurricanes and other perils in recent years, much of that coverage is more comprehensive and more widely available from the geographic perspective, than in the past. Premiums have also become more competitive as more underwriters enter or re-enter the market. Lenders require that they are “first insured” for policies covering boats on which they have loans.
Q: How has the profile of potential boat loan prospects changed during the economic downturn?
A: Profiles have likely moved even more upscale reflecting strengthening qualifications for borrowers of everything from real estate to discretionary purchases, including boats. NMBA’s data of boat loan customers show:
- Average Age … 45 – 54: 50.0%; 35 – 44: 41.7%
- Household Income … $50K+: 58.3%; $100K+: 41.7%
- Home Ownership … 88.5%
- Dual Wage Earner Households … 50.2%
Q: What other factors are marine lenders considering now in approving boat loan applications?
A: Credit scores in the 700 range have become average; good credit history for 5 years is common while “gaps” are questioned; experience with comparable credit on larger, longer term loans, especially previous boat loans, helps; liquidity and net worth of the borrower, sometimes asking for two-times the loan amount, is often a factor in larger requests.
Q: Are “short sales” a factor in boating as they have been in real estate?
A: There are very few of these transacted. Smaller, high production boats typically find resales at auctions where prices are determined by guidebook benchmarks without regard to other factors which might add to or detract from value, such as engine hours, saltwater use, accessories, etc. Larger craft have a better chance to benefit from a short sale, especially if the process is being guided by a marine remarketer or other professional working closely with the affected lender.
Q: Is there an advantage for lenders to specialize in a particular marine market segment when considering boat loans?
A: Lenders have had better success in following good underwriting basics, such as credit scores and establishing rational terms, than concentrating in small slices of the boat market. Some assume a sailor is more risk-averse than a go-fast buyer or that a pontoon user may be less inclined toward delinquency than a personal watercraft owner. A mix of boating segments seems to provide more stability on portfolio performance. If a product needs to be recovered, disposition will likely be on a case-by-case basis without influence of the segment it represents.
Membership in the NMBA includes financial institutions such as commercial banks, private financing firms, savings and loan companies, and credit unions. Firms extend or originate credit to consumers, retailers/dealers and manufacturers of recreational boats and equipment. Associate members are those which provide services to the marine lending community.