Written by Glenn Wallace, as originally published in The Reverse Review.

Every day I read a new article about forward mortgage companies looking to get into the reverse space. Attracted by double-digit secondary market pricing and a more flexible regulatory environment, these companies are looking for seasoned loan officers or sales managers to head up their new reverse divisions. And many of our faithful are taking the bait!

While these companies paint a very rosy and glorious picture for their new hires, one needs to face several realities before leaping into this often “too good to be true” opportunity. First of all, many forward companies have no clue what to expect in production volumes, the resources necessary to be successful or the timelines required to build this business. And the failure to recognize these pitfalls usually leaves the division head looking for another position within a year.

There are several reasons why it is very difficult for a forward shop to find success in the reverse space. The first is scale. Many of these lenders are closing 500-1,000 loans a month. Meanwhile, on the reverse side, there are only 35 companies closing 10 or more loans per month! On a per unit basis, the profits in the reverse sector look phenomenal. However, scalability is a long and dedicated process. Unfortunately, our forward brothers are plagued with what I call the “crisis of expectation,” asking, “Why aren’t we making money yet?” They are not going to wait a year or so to close 10 loans a month! They soon get disenchanted and their accountants decide to pull the plug.

Another problem is that many forward shops try to run their reverse business like their forward business, using forward underwriters and processes. Getting a reverse loan closed in that environment is almost impossible. It is a separate business with different marketing strategies, different compliance rules, different underwriting and different compensation. It’s just different. Most forward players can’t understand that and end up paying the price.

It is a natural progression for good loan officers to look to leverage their talents and be a sales manager, to earn overrides on other salespeople and make more money. Therefore, the idea of heading your own division sends your ego in hyper-drive. Just be careful. Before accepting an alluring position, get some straight answers.

Consider asking the following questions:

-What are the volume and profit expectations of the division?

-What are the timelines to achieve these goals?

-Is the company DE-approved by HUD for reverses?

-Do you plan to broker loans, close in your own name and underwrite in-house?

-Do you have a reverse DE?

-How many states are you licensed in?

-How do you pay your loan officers?

-What type of marketing budget, if any, is there for the reverse division?

There are dozens more questions that you should ask, but the bottom line is: Make sure you are certain that you will have the time and support needed to make your division successful.