Tuesday, November 09, 2010

Advice from the Cab Driver on Mortgage lending

On my way to the airport I had a most interesting conversation with the cab driver.  He arrived at my house about 20 minutes late.  As I loaded my luggage into the car, I was expecting him to apologize for being so late.  Instead, he seemed more interested in venting about the changes in the cab industry that have reduced the income of the typical cab driver to between $8-$10 per hour.  Apparently, cabs these days are equipped with GPS systems that enable the dispatcher to identify which zone they are in and place them in a queue for the next pick up in that area.  This queue is particularly important because most drivers lease the car for the day and pay for their gas which amounts to about $120 (approximately half of what the cabby stands to earn in a 12-15 hour day). 

So, you can imagine how annoyed they become when another driver steals their customer.  How can another driver steal their client if the dispatcher determines who goes where you ask?  Well, it seems that people who are particularly anxious for the cab to arrive tend to head outside and wait at the curb.  The unsuspecting customers then become the target of other drivers unwilling to play by the rules.  The driver who pulls over to the curb after being waived down is supposed to ask whether the customer is waiting for another cab.  But, somehow they consistently forget to make this inquiry before loading the bags and turning on their meter. Turns out that this problem has become particularly acute lately.  And you'll never guess why?

Loan officers being starved to death by the housing crash have turned to driving cabs in overwhelming numbers (at least in the opinion of this driver).  "They are everywhere" he complained, "they have no respect for the rules".  "A driver can't make a descent living anymore," he continued shaking his head. 

What he doesn't realize is that his problems are only going to get worse.  Big banks (like Bank of America) are shutting down their wholesale departments.  In other words, they are no longer accepting loan submissions from mortgage brokers, preferring instead to market to the borrower directly.  Now, this isn't the first time they have done this, but when you combine this trend with the overall illiquidity in the market it spells big trouble for mortgage brokers. 

Brokers can't go in house to the banks because banks aren't hiring for obvious reasons.  Since many brokers flooded into the mortgage industry from other industries during the refinance boom of the early 2000s, they do not have they same industry loyalty as one might find in other industries. 

So what happens to a mercenary when the war is over?  In Los Angeles, at least, the answer seems to be... invade the cab industry.

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