MARINE FINANCING:
SELLING BOATS IN A TIGHT MARKET
Despite the credit crunch,
there was an air of
optimism at the NMBA’s
annual conference
By Lisa Hoogerwerf Knapp
Tfects of tight credit and a “deleveraging”
cycle, as a society that had become increasing-he U.S. economy will continue to suffer the ef-
ly reliant on borrowing digs itself out from under a
mountain of debt.
That was the scenario outlined for members of the
National Marine Bankers Association by financial strategist Gina Martin Adams, who spoke in November at the
NMBA’s annual conference in Palm Springs, Calif.
“Household liabilities are now at an all-time high
relative to both assets and net worth, and debt is
about 125 percent of disposable income,” says
Adams, institutional equity strategist for Wachovia
Capital Markets. In spite of a radical shift in consumption patterns, “The worst has passed and there
is hope and light at the end of the tunnel,” she says.
But real recovery, she predicts, won’t occur for another 18 months or longer.
Meanwhile, banks are lending to one another
again, she told the NMBA audience, although
spreads have tightened.
Since the end of 2001, non-financial debt — debt
held by governments, households and companies outside the financial sector — has increased 8. 4 percent
annually, says Adams. That compares with a nominal
5. 3 percent increase in the gross domestic product.
During the short-lived 2001 recession, debt was 188
percent of the GDP. Now it is 225 percent, Adams says.
In today’s economy, Adams adds total non-financial
debt has grown 180 percent, while household indebtedness alone has jumped 270 percent.
Pleasure boat spending has contracted by 33 percent, Adams says. If this recession follows the pattern
Members of the National Marine Bankers Association
met in November, and the economy was foremost on
their minds. The conference included remarks by
NMBA chair Peggy Bodenreider (top left); president
Jim Coburn (above); and Gina Martin Adams, Wachovia
Capital Markets (left, below, with Bodenreider).
of previous downturns, that’s about as bad as things
should get, she says.
“Boats run on dollars, not just fuel,” says NMBA president Jim Coburn. “The marine industry must appreciate
the value marine finance brings.” Marine loans are still
superior in performance terms to other types of lending,
he says, although the consolidation in the marine banking sector will mean fewer dealers, lenders and banks.
Coburn says signs of recession first appeared in August
2005, followed by the mortgage meltdown starting in August 2007, followed by the credit crunch in spring 2008.
A brighter future
Coburn is bullish on the long-term outlook for boating.
“There will always be a marine market and it is considered resilient and will come back,” he says. “It’s
not true that boat buyers can’t find financing. It’s just
not true. There are the same number of lenders out
there today as there were 15 years ago [in spite of
notable lenders such as Wachovia, Regions, Citizens
and Key Bank exiting], so that is not a reason for a
lack of boat sales. Credit is available and there are
Paperless loan process requires diligence
A change in procedure has eliminated
federal paperwork in the marine loan
process, but has increased the likelihood of
fraud and identity theft, members of the National Marine Bankers Association were told
in November at their annual conference.
With new electronic filing regulations
and faxing procedures enacted in 2007,
the Coast Guard has gone paperless, and
all documents for marine loans now are
being scanned.
As a result, getting marine loans will become more complicated, says Kathi Krencik, president of the American Vessel
Documentation Association. Loan originators, she says, will have to develop more
clearly defined policies and procedures.
Krencik, a certified Microsoft Access
programmer specializing in database programming for vessel documentation, says
the AVDA recommends all original loan
documents be sent to lenders, and that
non-AVDA members should develop procedures for custody of original documents.
The changes were the subject of a Best
Practices slide presentation at the NMBA
conference in Palm Springs, Calif. The
presentation by Don Parkhurst, senior
vice president of SunTrust Bank; and
Michael Bryant, a partner in Trident Funding Corp., offered some tips on dealing
with the changes:
• New electronic procedures imply more
red tape and pressure to close from deal-ers/brokers/customers. Lenders should
not fund loans upon receipt of faxed doc-
uments if originals remain unsecured.
Electronically filed documents increase
the risk of fraud and identity theft because the Coast Guard currently has no
encryption process.
• A paperless Coast Guard increases the
chances for document rejection, with multiple faxed documents, scans and small
font sizes raising the likelihood of illegibility. The lack of original signatures will encourage shrewd lenders to consult with
legal counsel for guidelines to fund these
transactions.
• Lenders should be on the lookout for
straw purchases, in which the lender finances the boat purchase for one person,
but the boat is in the care and custody of
someone other than the person on the
loan documents — possibly someone
who did not qualify for the loan.
• Best management practices to avoid
straw purchases should require that loan
documents include a statement of ownership, documenting that the borrower will
be the sole owner of the boat and it will remain in his or her care/custody at all times.
A lender should closely review all title and
insurance documents to confirm that no
other party appears as owner or insured.
• Co-brokered loans are a new source of
deception to both lender and consumer. In
essence, Loan Broker 1 is submitting loan
applications on behalf of Loan Broker 2,
who is not approved by the lender. The
lending company should always know
with whom it is doing business.
• Boats delivered overseas that will be returning to the U.S. for permanent mooring
are another problem for loan originators,
