We’re treading water in the “red ocean.” It’s very small, constricted and crowded. We keep bumping into sharks. Nothing and nobody is safe. We receive too much help, much of it shortsighted, some of it no-sighted. The big companies bailed because it was more trouble than it was worth, and now we have a new leaderboard by default. We are forced to play the same old game, competing within the existing market space, exploiting existing demand. We have become commoditized. We strive to beat the competition and to make the value-cost trade-off—to choose between differentiation and low cost. We are a one-sponsor industry, and that sponsor seeks to become smaller, not larger. There are too few products, aimed at too small a market niche. We can still build our businesses, but only if we can survive. We remain at less than 3 percent market penetration, despite a 25-year quest to help even more consumers.
We must break through to the “blue ocean”! It’s very large, uncrowded and inviting. We must create uncontested market space (the other 97 percent of seniors and older boomers). We must render competition irrelevant, create and capture new demand, break the value-cost trade-off, and pursue both differentiation and low cost. That is the opportunity that exists today: a vast, underserved and underpenetrated market, with huge, pent-up demand.
But today we are practical and tactical, constantly reacting to market shocks and major industry changes. In truth, ours is a dysfunctional industry, underperforming against the needs of our marketplace. We must become more strategic and break away from business as usual in order to reach the mass market.
All customers are not the same, and we should not define “average customers” for our convenience. We must differentiate among customers by creating unique and finite target niches, each with different wants, needs and requirements, and therefore each with different solutions. We must understand that those
The FHA never intended the HECM to be 100 percent of the reverse mortgage market, nor were its products designed for all potential customers. We must stop forcing customers to fit into our limited product menu, and begin developing innovative products for our diverse and unique customers. We have done this before.
Before the global recession, proprietary jumbos accounted for 6 percent of unit volume and 19 percent of dollar volume. The FHA seeks to return to its original mission: servicing low-income/low-home-value customers with partial draws upfront and the rest in lines of credit or annuities spread over their remaining lives. As the agency works toward this change, its products have become more expensive for less proceeds, which will encourage the entry of proprietary products for the non-jumbo world.
Combined with smarter marketing and distribution, these changes will open up the mass market. The industry should dwarf its golden years of 2006 to 2007. We can’t wait for this to happen; we must make it happen! It sometimes seems that we as an industry are fighting the wrong battles or engaging in the wrong dialogue. But rest assured, there are many smart people in this business who are already working to transform the industry. x
This article reflects my personal opinions, and was inspired by insights gleaned from the excellent business book Blue Ocean Strategy.