How A Former Airline Credit Union Dominates RV Loans

An airline-based credit union is flying high in the land yacht business. Over the past several years, Alliant Credit Union ($14.0B, Chicago, IL) has built a recreational vehicle loan portfolio that is worth $1.3 billion and growing fast.

Membership for Alliant formerly United Airlines Employees’ Credit Union is available through hundreds of affiliations, which allows easy entry for indirect borrowers. In fact, Jason Osterhage, the cooperative’s chief banking officer, says Alliant makes more than 90% of its RV loans through an indirect lending operation that includes more than 200 dealers and strategic relationships with key corporate dealer groups that operate stores nationwide.

“Although our dealer network is national, our most productive store-level relationships are concentrated in Florida, Arizona, California, and Texas,” Osterhage says.

Account executives at Alliant support dealers within individual regions. The credit union conducts a brisk business, but it’s quick to spread the wealth among other credit unions.

“We’ve sold almost $500 million in RV loan balances across 23 pools to several credit unions,” Osterhage says. “A number of them are repeat buyers. We’ve sold RV pools a few times over the past two years but more frequently in the past year or so. Credit unions seem to be becoming more familiar and comfortable with RV loans as an asset class, and all financial institutions have become asset-hungry for obvious reasons since the middle of 2020.”

Life In The Fast Lane

Most freeway drivers might find it hard to imagine anything about an RV being fast, but sales certainly are. The RV Industry Association projects total 2021 RV shipments will be between 565,848 and 586,281 units. That’s up a 33.8% from 2020’s year-end total of 430,412 units. The record high is 2017’s 504,600 units, the trade group says.

The RVIA also says that RV ownership has grown more than 60% in the past 20 years, and it’s not necessarily the older set behind the wheel. The trade group’s research shows ownership evenly split between people older than and younger than 55.

The trade group also says a record 11.2 million households now own RVs, and it predicts 9.6 million households will buy one within the next five years. Twenty-two percent of that growing market is from 18- to 34-year-olds.

Alliant itself is recording double-digit annual growth in RV lending and expects that to continue in 2021.

“The RV market is more diverse than ever and growing strongly,” Osterhage says.

According to Osterhage, the traditional RV buyer of yesteryear might have been a retiree with a lot of vacation time and who might have lived in their RV full time, or they might have been a midlife family with a taste for camping in comfort. But that began changing before the pandemic as younger people began embracing digital nomad and FIRE (financially independent retire early) lifestyles.

Then came COVID-19.

“During the pandemic, the already strong RV market exploded,” Osterhage says. “People unable to board a plane for European vacations put that money into the purchase of an RV. Now that the pandemic is fading, RV demand continues to be high.”

Big-Ticket Items = Specialized Lending

RVs aren’t cheap. New and even used ones can run from $100,000 to $300,000 or more. Alliant’s RV portfolio contains approximately 27,000 loans with total balances of $1.3 billion. That’s $48,148 per loan. During the past 12 months, the average initial loan balance has been approximately $70,000 for 15 years.

“The average life of the loan is most often in the five- to seven-year range,” Osterhage says. “There is a robust market for pre-owned RVs, and few people own an RV for 15 or 20 years.”

A dedicated landing page on Alliant’s website offers up to $300,000 and 20 years for an RV loan. Its rate page in early June offered loans at 4.24% for 120 months on up to 5.24% for 240 months without prepayment penalties. Borrowers can access an online application link and the credit union provides a preapproval to help borrowers negotiate with the dealer.

Osterhage says RV rates are higher than for auto loans primarily because of the specialized nature of the collateral, larger loan size, longer loan term, and cost associated with more complex underwriting.

A Growing Business And Successful Staff

Alliant is not a newcomer to the RV business. In response to member requests, the credit union began funding significantly more RV loans in 2012 and 2013 and then formalized its national indirect program in 2015.

“Our entry into the RV space was a response to member requests,” Osterhage says. “After that, enterprising and goal-driven branch staff identified RV loans as a good way to meet loan origination volume objectives and took the initiative to develop informal relationships with RV dealerships.”

Osterhage says the RV business operates much like a typical indirect auto lending business through dealers, not manufacturers. However, the credit union would be open to a manufacturer arrangement, too. He also says RV loans pay a higher interest rate than auto loans but don’t create much extra margin to work with.

RVs loans carry a bit higher loss-given-default at the portfolio level, due to the specialized nature of the collateral, he says. Nevertheless, we have been pleased with the risk-adjusted profitability of our RV assets. We’ve seen good delinquency performance from RV loans. We underwrite carefully and put special emphasis on debt-to-income and payment affordability.

Alliant services all its RV loans in-house. It manages the indirect RV business with a mix of vendor connections to dealer and third-party loan processing software and internal staff including regional account executives and wholesale underwriters trained to review RV transactions (and cross-trained to support indirect auto lending.

Look Before Leaping

Osterhage advises credit union executives to invest some time to study the risks and characteristics of RV loans and understand how those fit into their overall risk appetites.

“RV loans might seem to be a niche or unconventional loan type, but any smart credit union lender will understand RV loans if they take a little closer look,” Osterhage says.

In fact, if a credit union is comfortable buying auto loan participations, they can get comfortable with RVs.

“The principles of the RV asset class are very similar,” Osterhage says.

Alliant’s comfort level with the RV niche is also the result of its own long experience in actively buying and selling participations and whole loans of multiple kinds.

“The volume varies based on asset availability, investor appetite, economic and credit cycles, and Alliant’s own balance sheet needs,” Osterhage says. “It would not be unusual for us to both buy and sell more than $500 million in loans in any given year.”

The big cooperative also continuously evaluates what lending businesses to enter and exit. For example, it got out of aircraft and marine lending several years ago and is now actively working to enter the solar lending and home improvement sectors.