Our industry can benefit from the lessons taught in market disruption
Market disruption has pushed many household bands into extinction and created new multi-billion dollar corporate giants. Consider these example. As the internet became increasingly fast Netflix quickly crushed the brick and mortar business model of Blockbuster Video allowing consumers to avoid long lines, late fees, and limited selections. When Betamax, and VHS tapes first entered the market many in Hollywood openly lamented that this was the beginning of the end of box office movie sales. Then came online music. Napster disrupted the tightly regulated sale of music controlled by a handful of record labels allowing anyone with an internet connection to download and play nearly any song. The music industry balked, filed suit and then eventually embraced the digital revolution foisted upon them leading to the debut of Apple’s iTunes, Pandora, Spotify, and others.
Each of these market disruptions is instructive, providing us a keen insight into how industry’s resist change and fade into extinction or adapt and increase market share. While on a much smaller scale, the reverse mortgage industry is facing a similar conundrum- albeit much of it born from regulation rather than innovation.
There are typically two approaches industry’s have taken to increase their appeal to consumers: offering a plethora of products or simplified selections. Consider the…
3 Comments
My favorite message yet! There is abundant opportunity to create a new approach; it will, however, require a positive attitude and a fresh approach.
Thank you Sharon!
This is an answer for lenders albeit questionable as we have no success model for a TPO or lower volume Mortgagee transitioning to a full service lender. This still leaves originators out in the cold?
The HECM industry cannot continue at the levels we have seen without reductions in key leadership, administrative, and sales support roles. Projections based on actual numbers do not look great for the start of fiscal 2019. In fact if HUD fails to increase PLFs, not only will fiscal 2019 be low but until PLFs can be turned around, we could see yet another decade of downward sloping, hill to valley, secular stagnation with a year or two of further loss.
An author recently discussed annual losses for the HECM program as reported by HUD in its annual report to Congress on the MMIF for fiscal 2017 by fiscal year of HECM endorsement. He noted that the average loss per HECM had grown by 150% from fiscal 2014 (at $14,000) to fiscal 2017 (at over $35,400). The projections considered all MIP, termination cash inflow, and other sources of costs and expenses.
The only major change that took place between the end of fiscal 2014 and the start of fiscal 2018 was financial assessment. There is no question that financial assessment has exasperated the HECM losses in the MMIF rather than mitigated them. He made the very, very unpopular decision to recommend lowering PLFs yet further if financial assessment continues (since there is no pragmatic way to rescind it).
If our concern is staying in reverse mortgages only, October 2, 2017 changes are but the start of what will be needed in the future to control the loss increase experienced from the HECMs endorsed during fiscal 2017. So far HUD has proven its inability to shut these losses down as have the recommendations of NRMLA and leading lenders. NRMLA tells they have made more recommendations this summer. Yet will these cure the situation?
Seeing the reaction in DC recently to the estimated increased costs of a military parade in Washington which was less than $100 million, one wonders how long it will take Congress to turn its guns on HECMs. The drastic steps needed to bring HECMs under control as a mortgage program will further drain the coffers of HECM lenders and create a situation where NRMLA could become less effective.