In 2008, Alliant Credit Union began selling loans for recreational vehicles.
Despite the Great Recession, they persevered and got good. They knew the process, they knew the quirks, and in 2013 they started teaming up with major VR franchises as an indirect lender.
While Alliant had developed an efficient RV lending machine, production was more than it wanted to hold in its portfolio.
Thus, it sells them within the framework of the system specific to credit cooperatives called participations: Alliant sells 90% of the loan, and keeps 10% in its portfolio.
Based on NCUA data, Alliant ($15.2 billion in assets, 646,111 members) was the fifth-largest seller of non-home loans last year. It sold $1.1 billion in loan stakes in 2021, more than double the $425.6 million sold in 2020.
All credit unions ($2.08 trillion in assets, 131 million members) sold $22.7 billion in non-home loans in 2021, up 69% from $13.5 billion of 2020.
Only 410 credit unions sold any amount of stakes last year. They made up about a third of the movement’s assets and membership, and their sales were $22.7 billion in non-home loans in 2021, up 69% from $13.5 billion in 2020.
John Toohig, head of overall lending operations at Raymond James Financial in Memphis, Tennessee, said the appetite for equity came with the surge in savings in the age of the pandemic, which made lower loan/equity ratios.
CUNA showed the loan-to-savings ratio was around 70% for most of last year, down from around 82% in February 2020, the month before COVID-19 was declared a pandemic. It has been rising since last fall, but was still only 70.9% in January.
Toohig said he thinks the need to raise that ratio will keep credit unions buying stakes for another 12 to 18 months.
“We have a hell of a hole to dig,” he said.
Over the past two quarters, auto loan participations have been high.
Credit unions that choose to forgo interest income by selling equity interests earn premiums up front that are typically about 100 basis points of the loan balance at the sale.
For the 10 largest sellers of non-real estate loan participations, those premiums would have been worth about $138 million last year, or about 0.23% of average assets. These 10 credit unions had returns on average assets of 1.51% in 2021, compared to 1.07% for all credit unions.
The Top 10 Loan Participation Sales ($66.3 billion in assets, 4.4 million members) sold $13.8 billion in loans in 2021, nearly triple the $4.8 billion in dollars sold in 2020. These are:
1. PenFed Credit UnionTysons, Virginia ($32.5 billion in assets, 2.6 million members) sold $6.4 billion in loans in 2021, nearly four times the $1.6 billion in 2020 .
2. Oregon Community Credit UnionEugene, Oregon ($2.8 billion, 227,973) sold $1.6 billion in loans in 2021, up more than 11 times from $143.3 million in 2020.
3. Evansville Federal Teachers’ Credit UnionEvansville, Ind. ($2.8 billion, 260,793) sold $1.4 billion in loans in 2021, up 28% from $1.1 billion in 2020.
4. Lafayette Federal Credit UnionRockville, Maryland ($1.3 billion, 45,920) sold $1.1 billion worth of loans in 2021, nearly triple the $402.9 million in 2020.
5. Alliant Credit UnionChicago ($15.2 billion, 646,111) sold $1.1 billion in loans in 2021, more than double the $425.6 million in 2020.
6. General Electricity FundCincinnati ($3.9 billion, 226,609) sold $490.1 million in loans in 2021, more than triple the $137.6 million in 2020.
7. Quorum Federal Credit UnionPurchase, NY ($1bn, 66,084) sold $476.2m in loans in 2021, up 60% from $298.5m in 2020.
8. Amplify the credit unionAustin, Texas ($1.4 billion, 58,014) sold $463.2 million in loans in 2021, more than double the $208.6 million in 2020.
9. American Heritage Federal Credit UnionPhiladelphia ($4 billion, 247,199) sold $401.5 million in loans in 2021, more than triple the $123.3 million in 2020.
10. Collins Community Credit UnionCedar Rapids, Iowa ($1.4 billion, 90,979) sold $390.5 million in loans in 2021, up 3% from $380.3 million in 2020.
At Alliant, RV loans make up a large portion of its participating sales.
Recreational vehicles make up about $1.5 billion of Alliant’s $10.1 billion loan portfolio as of Dec. 31. A March 21 press release from Alliant says RV loans are similar to auto loans, but their risk-adjusted returns tend to outperform auto loans.
Charles Krawitz, who is director of capital markets and head of commercial lending at Alliant, said credit unions are becoming more comfortable buying RV stakes as they grow in popularity and earn confident in Alliant’s knowledge of the lending niche.
“Through the sale of loans, we are able to manage concentration risk while providing attractive opportunities for other credit unions. It’s a win-win,” Krawitz said.
The RV Industry Association reported that a record 600,000 recreational vehicles were sold last year. It says around 11.2 million households own a motorhome, a 62% increase from 20 years ago, and around 9.6 million households intend to buy a motorhome. because over the next five years.
Toohig said RV loans particularly increased during the height of the pandemic, when vacation cruises were canceled and people became wary of non-essential flights.
So for those who wanted to travel, RVs became a hot option. And that trend has translated into increased sales of RV loan interests, he said.
“The volume has definitely increased because of the pandemic,” Toohig said.