It’s true that, even well into the economic recovery, financing still is nothing like it was before 2008. But it has shown marked improvements.
Where pool loans had generally been secured with second or third mortgages, lenders became very skittish after the Great Recession. Back then, pools were even considered a bad investment.
Up until this day, very few lenders will make secured loans, such as second or third mortgages, for any purpose. So we’ve had to find banks willing to make unsecured loans based solely on the applicant’s creditworthiness and not protected by collateral. At this point, unsecured loans account for probably 90 percent of home-improvement lending in the United States. I don’t believe we’ll see mortgage loans offered again anytime soon because they have been so tainted that most banks don’t want to get involved.
But there is a benefit to unsecured loans. There are no fees involved — no appraisal, title work or other related costs.
And we’ve seen an overall improvement in pool financing. There were hardly any lenders five years ago, but now I have several investors — some banks, some finance companies. Part of that stems from my educational process. After I explain how these products tend to perform, investors may allow me to bring a few loans to them. Over a period of several years, they see the performance of the products and they become more aggressive in their lending habits.
But it requires promoting pool financing almost everyday to investors. They have certain concerns about pool loans. For one thing, they are a little bit more hands-on by the lender, because it’s a more complex product. A typical pool takes three months to build, and plenty of things can happen in that period of time. It’s not like a car loan. Almost every pool is a custom job. Even if a client is only choosing from five or six preset designs, several other factors make it a custom project — you have different kinds of deck, waterfalls and heaters, for example.
Another challenge comes from the fact that a swimming pool is a higher-priced product than an enhancement such as new windows. Investors are used to an average home-improvement price of $8,000 to $10,000. So for an unsecured loan, they become a bit fearful when the price exceeds $10,000 or $12,000.
Fortunately, we’ve gotten to the point where we frequently can offer loans at $50,000 or even as high as $100,000. That stems from a distinct positive for the pool industry. We have been able to approach some of the same banks that experienced heavy losses in the housing crisis and convince them that swimming pool buyers typically pay better and have a much more enjoyable experience than buyers of other home-improvement products.
We used to offer financing on all types of products, such as roofing, siding and sunrooms, along with pools. We have found that, in most cases, pool buyers are more qualified and happier with their improvements than are customers purchasing some of those other improvements. It’s a softer sell, meaning if someone wants to buy a pool, it’s usually for recreation and family. So it’s sold in a much softer way than would be replacement windows. Also working in the favor of pool loans, sometimes disagreements arise between customer and contractor, but that generally doesn’t happen. When you get into some of the other products, customers may find out that they were overcharged. They may feel taken advantage of, because it’s more of a quicker, harsher sale.
And, because almost every pool out there is a custom-built product, the contractor is apt to spend more time with the homeowner, finding out what matches the dimensions of their backyard and lifestyle, and what they’re looking to accomplish. So they feel more at ease.
This is all important to investors, because they have to live with the borrower for upwards of 12 or 15 years. A happier customer is more likely to make payments, and they’re easier to work with.
We find that investors experience fewer losses and less collections in delinquency from pool buyers than purchasers of other products. Probably the most powerful data in persuading investors has been the rate of delinquency in losses.
Because of all this, I believe that more and more investors will enter the scene and become comfortable with the larger loans. Plus I expect the terms to become more favorable — as long as 20 years — so that payments are more affordable.
We’re already seeing improvements. This year we will talk to and process more than 25,000 requests for pool loans.
We would like to see pool builders make one change in how they typically deal with financing. Generally, contractors will talk with homeowners about what they want, and even develop designs before knowing how the customer is going to pay for it. With my background in finance, that would be the first question I’d ask. This way, you will find out if the customer is going to be able to qualify or not, and you will know what the budget is.