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of specific FICO bands, size of the loan, and risk profile based upon
specific items in the credit report, such as judgments, tax liens, etc.
Casey:
Capital One has not made any major changes in our criteria,
because we became active in the market after the recession. Across
the industry, we have seen additional scrutiny by both developers and
lenders when it comes to reviewing consumer creditworthiness.
8. Can you give a prediction for the near
future about lending markets?
Morrisroe:
I cannot predict the future, but I can tell you that I have
noticed a very positive and optimistic feeling expressed by developers,
lenders, and vendors beginning in the fall of 2013.
Azzi:
Given the high levels of liquidity still out in the market and finan-
cial institutions needing to deploy capital, I feel that the near future for
borrowing funds as a developer is very favorable.
Casey:
We expect to see continued access to capital and strong
liquidity in the coming year, as well as consolidation among developers,
who will continue to access the capital markets.
Brydge:
I don’t see much change away from the current trends in the
immediate future. Eventually, we’ll see interest rates increase to more
traditional levels. This will have a muted effect for most commercial
lenders, but could be a significant game-changer for institutions that
source their funds through means other than consumer deposits.
Depending on the speed of that increase, it could pose problems for
lenders who offered low long-term rates without properly hedging on
the back end. Government regulation of lenders will continue to
expand, with the next two areas of focus possibly being credit unions
and enhanced protection of consumer data.
Ward:
The current issue for lenders is the difficulty attaining portfolio
growth. The performance of the timeshare receivables also accel-
erates repayment to the lender. Add to that a wider use of securitizations
by timeshare companies and repayment is occurring faster than
lenders want. Therefore, the competition for new relationships is very
intense. History tells us that, sometimes, that can lead to lenders
reaching a little beyond their comfort zone. So perhaps the future has
lenders a little more aggressive than today.
A wildcard to throw in is the inevitable increase in U.S. interest
rates. A modest interest-rate increase will have very little impact on
timeshare lenders, but more substantial rate increases combined
with any economic turmoil might backfire on an aggressive loan
structure.
9. What have you learned from this
market cycle? In other words, what are
you now doing differently?
Azzi:
We have been in the timeshare business for over 30 years and
realize the importance of having underwriting guidelines, evaluating the
quality of your marketing channels that generate new tours, and main-
taining multiple relationships with financial institutions that understand
your business and industry.
Casey:
The recession was clearly a major force in the industry’s
development. The financing difficulties that developers faced have
made them better and stronger. As the number of lenders increases, we
will take a flexible approach to loan structures, while focusing on our
clients’ needs and maintaining quality in our portfolio.
Brydge:
What we learned most was that our philosophy and way of
doing business works during even the most difficult of times. Though the
Great Recession caused a very significant economic adjustment world-
wide, the performance of our timeshare loan portfolio and our support of
our borrowers didn’t waiver. We were lending to timeshare developers
when prime was at 20 percent, and we’re still lending today with prime at
3.25 percent. We can’t predict when the next great crisis or opportunity
will occur, but we know we’ve got the right foundation and the right part-
ners to handle whatever comes next.
Ward:
For lenders who are involved in timeshare, they continue to
understand it is a safer bet than other more commonplace lending to
conventional industries. The current market cycle resulted in some
consolidation that produced larger and stronger vacation ownership
companies. So the lesson learned is to enjoy this sweet spot in the
cycle. Proceed confidently, but not undisciplined, to better ride out the
next downturn in the cycle.
Morrisroe:
We have learned a few things from the market cycle:
The first is that lenders and developers are now more in tune with each
other and understand that partnership more than ever. I’ve also
learned that we can ride through a tough business cycle if we keep our
heads down and do what we do best, focusing on exceeding clients’
expectations and providing unparalleled customer service.
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“Eventually, we’ll see
interest rates increase to
more traditional levels.
Government regulation of
lenders will continue to
expand, with the next two
areas of focus possibly
being credit unions and
enhanced protection of
consumer data.”
— Shawn Brydge