Home Improvement ABS: Promotional Products, Delayed Losses

Home improvement (HI) ABS is a subsector of the burgeoning point-of-sale (POS) ABS sector. POS lenders finance retail purchases and services, typically when the individual interacts with the merchant. In the HI sector, merchants or contractors expected to perform the renovations offer loan products to potential borrowers.

Through their contractor networks, lenders offer borrowers a range of lending products, including promotional products, that may help offset the overall funding costs of an HI project. Promotional products are POS financing offerings that feature an initial period of deferred or reduced interest; if the borrower does not repay the balance during that period, the loan resets to a fully amortizing structure at a higher annual percentage rate (APR).

In this KBRA report, we examine the credit characteristics and loss profiles of securitized home improvement loans by product type (promotional versus traditional) and provide an update on issuance trends and credit…