James Kleimann’s Post

I live in New York City, so I am exposed to all kinds of wild stuff. Just last week there was a guy at the Bleeker Street Station 🚇 chilling on a bench with a bunch of ferrets. You get used to it. Similarly, New Yorkers have gotten accustomed to paying rental brokers thousands of dollars even though the brokers work for the landlord. Personally, I think the (long-standing) practice is absolutely crazy! And it might soon end, though it won't be without a fight from REBNY (Real Estate Board of New York) 👨💼 and thousands of NYC rental brokers. Here's a quick-ish breakdown: 💰 Outside of Boston 🥔 🥣 and New York City, it's customary for the landlord to cover the broker fees. It's their apartment and they're paying for a service to find a qualified tenant, right? But because vacancy rates are minuscule and there's far more demand than supply, it doesn't work that way in New York. Without leverage, the tenant often eats the fee. 🙅♂️ 💳 Why is it like this? City agencies typically pay 15% to brokers to place tenants without income or credit history in apartments. That fortifies 🏋♀️ a practice that's been in place for decades, Michael Corley of Corley Real Estate told Curbed. New York City is highly unregulated in this regard. 🙄 The broker fees can be 15% of the yearly rent or sometimes just one month of rent. The average New Yorker pays $3,474 in broker fees, according to StreetEasy. That's on top of first month, security (and sometimes last month) being due at signing. So for about half of apartment seekers, we're talking $10,000 upfront at minimum. The service 👩🍳 from NYC rental brokers is often pretty crappy, too. It's common for them to literally just open a door. I've also had brokers who didn't even show up and still expected to get $2,500 from me(!). 🏙 Councilmember Chi Osse has introduced a bill that would require property owners to cover broker fees when they hire a broker to help them lease an apartment. ⛑ REBNY and brokers say the bill would put rental brokers out of work and increase the cost of rents. Landlords would just pass the costs of broker fees in the form of higher rents, and these would be permanent, the industry argues. Small landlords would be disproportionately impacted, according to REBNY. I think REBNY is probably right that it won't lower costs, but they'll simply be baked 🍪 into the rent. That doesn't mean the bill should be killed. 🤡 In my opinion, too many NYC rental brokers simply don't have the skills to articulate or demonstrate their value to the landlords, and they're scared this grift on NYC renters is going to come to an end. There's a silver lining here, though. Landlords absolutely do not want to deal with the general public, so the good brokers who can prove they're worth it will still be in the game. There's a broader theme here, folks...

Where in America are you most likely to see a refi in the wild 🦁 🦓 🐻 ? According to Optimal Blue's rate lock data for the month of May, the Los Angeles-Long Beach-Anaheim metro 🌴 had the highest proportion at 22% of all locks. LA was followed by Atlanta-Sandy Springs-Roswell 🍑 at 18%. On the other end of the spectrum, refi locks were comparatively rare in Austin-Round Rock 🤠 at just 5%, and Minneapolis-St. Paul ☃ and Houston 🚀 tied at 7%. 🚠 Nationwide, mortgage interest rate sensitivity triggered a 25% spike in May rate-and-term refinance activity. Still, refis remain just 13% of the mix overall and rate-and-term lag cash-out refis. The rate-and-term data really just points to the fact that homeowners with rates above 7% are sensitive to even small movements in mortgage rates.

A family member of mine was recently diagnosed with an aggressive cancer. It's terrible news. We're all anxious and concerned about her health, of course, but also about the potential financial implications. Some stats and thoughts about health care and housing in America 👇 😷 As a contract worker, her insurance is expensive and the coverage is poor (what could be more 🇺🇸 than that?). She is the type of person who always pays her debts, but I gotta be real with you — cancer costs are absolutely shocking. What if she can't pay tens of thousands out of pocket for necessary treatment her insurance denies/won't cover? 💊 Some troubling stats: About 55% of cancer drugs introduced between 2019 and 2023 cost at least $200,000 a year, according to Iqvia’s Institute for Human Data Science. Nearly 60% of working-age cancer survivors report facing some financial difficulty, and many have to run up credit cards or get payday loans. Cancer alone accounts for some 40% of medical campaigns seeking financial help on GoFundMe. That's fucking grim ☠ ! 💸 This all brings me to the recent Consumer Financial Protection Bureau proposal to ban medical debt from credit reports. The agency said the rule would remove as much as $49 billion of medical debts that "unjustly lowers credit scores for 15 million Americans." Medical debt was found on 43 million credit reports, and 58% of bills in collection on individuals' credit reports were medical debts. Wild! 🏡 VP Kamala Harris said this policy change would boost credit scores by an average of 20 points and would result in 22,000 'safe' mortgage approvals per year. 🔪 😶 But look, this isn't so cut-and-dried. The credit reporting agencies already removed all medical debt in collections with a balance under $500. Of the 43 million credit reports with medical debt, it's not all emergencies. Mortgage lenders want to know if a prospective borrower demonstrates a pattern of not paying medical bills, and for good reason. But personally I think there's a huge difference in someone not paying a $30,000 medical bill vs. paying their mortgage. I'd love to see some studies about the relationship between paying medical debt and mortgages, if anyone knows of any. 🏥 As my relative undergoes treatment, she's unfortunately had to hold off on buying a new house. The existing American financial system penalizes her for having the misfortunate of getting cancer(!), and I think the CFPB proposal is one of the best, most pro-consumer policy initiatives in its history. That said, for the mortgage industry, they could view this as more potential risk they can't account for and that might result in higher origination and servicing costs. Housing costs could rise in the aggregate as an unintended consequence. What do you think?

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Update #2: Well that didn’t last long. Our son Henry Kleimann was born this morning at 8:05 a.m. weighing 7.9 lbs (at just 34 weeks!). He is a beautiful child! Can’t wait to talk about household formation trends with him. Thanks again for all the well wishes! Update: Thank you everyone for the kind words and the support. You are all so kind! It looked nearly certain on Friday that an emergency C-Section would be needed, but we lucked out. Henry is only at 34 weeks and I’m relieved to report that it appears that my wife will remain pregnant a little while longer. It has been a challenging 48 hours! The staff at New York Presbyterian-Alexandra Cohen have been wonderful. We have so much to be thankful for. (This also means I’ll be back to posting housing news regularly until we do this again, hopefully on July 9.) Some personal news: My wife is expected to give birth to our second son today or tomorrow. We are incredibly excited! I’ll be posting infrequently on here over the next couple weeks.

🏭 🏠 Manufactured housing could solve a lot of problems for a country with an affordability crisis and shortage of a couple million homes. But a raft of bad policies 🙉 has kept that promise from being fulfilled. Let's explore (I promise there's a news hook 📰 🎣). 🔧 💵 You might have read the headline that HUD has launched a new manufactured home community loan program. Through the FHA, HUD is giving "mission-focused entities" the green light 🚦 to buy or improve existing communities, including making updates to common areas and helping maintain rent affordability. It leverages the existing FHA 223(f) program to buy or improve manufactured home communities that were previously ineligible. 🤔 Why are they doing this? Among the reasons is a lot of manufactured home communities are run by investors and private equity firms that have jacked up rents and let infrastructure go to 💩 . 🚸 HUD says this program should benefit about 5,000 families in the next few years. That's something, no doubt, but let's be honest, it won't move the needle much overall. 👩🏫 💡 🎙 Real talk: We need to reimagine the role of manufactured housing in America. For starters, a huge chunk of manufactured housing financing is chattel loans, which are largely ineligible for GSE/FHA/VA purchase. Private lenders turn down nearly two-thirds of applicants(!). 💳 Even with manufactured housing titled as real property, the GSEs are lagging 🐢 . 🔏 To its credit, Freddie plans to buy between 1,500 and 2,500 chattel loans this year. It's a start 🏁 but it will still be a fraction of the pool. Fannie isn't even considering it at this time. A proper GSE-backed chattel product would provide incentives for more lenders to offer financing and at better terms. Of course, the risk w/ chattel is higher and it would be a bear to establish, but the upside is big. 🏗 Let's be frank about some of the challenges: For starters, the number of manufactured homes being shipped remains low largely because of zoning and financing constraints. Manufactured home lending, especially chattel lending, is highly concentrated among a handful of lenders. About 85% of chattel lending volume in 2021 was originated by the 10 largest lenders by volume compared with 29% of manufactured home mortgages. 👀 FHA requirements on inspection, foundation, termite pretreatment and final survey can add $11,000 to a home's purchase price. Ginnie Mae could also change the requirements for issuers (min net worth of $10M plus 10% outstanding obligations to participate). Maybe some changes could be made to lower costs?

Let's talk about everyone's favorite subject in mortgage: loan buybacks 😠. Loan repurchases continue to trend downward at both Fannie Mae and Freddie Mac, but Freddie is reducing its loan buybacks at a much faster clip 🏃♂️ than Fannie, according to recently released data and public filings. Here are some highlights from Bill Conroy's final story for HousingWire. (After a remarkable and colorful 39-year career in journalism, Bill is hanging up the cleats. I'm really gonna miss him 💔 ): 📉 ⛰ The volume of loan repurchases at both Fannie and Freddie is down significantly since the peak in Q2 2022, with the steepest volume decline occurring over the final six months of 2023 (the most recent data available), according to assessments conducted by Sterling Point Advisors and RECURSION CO. 🔢 Between Q2 2023 through Q4 2023, however, Freddie’s total loan-repurchase dollar volume dropped at a significantly greater pace than did Fannie’s volume. Over the period, for Freddie, repurchase volume declined by 54% (from $594 million to $276 million), compared with only a 21% decline (from $444 million to $349 million) for Fannie, according to an analysis of the GSEs' most recently released loan-level data by Sterling Point and Augment Analytics' Brett Ludden. 📋 ☠ “There’s no indication, at least for data through the fourth quarter of 2023, that Fannie is doing anything to address this issue that pretty much for the past two years has been one of the number one issues lenders have been raising to the GSEs [government-sponsored enterprises],” Ludden said. 🏪 A review of the same agency loan-level data by Recursion shows that Freddie Mac’s repurchase-loan count, as of the first quarter of 2022, stood at about 2,500 loans, compared to about 1,500 repurchased loans for Fannie Mae. As of the fourth quarter of last year, however, that gap had all but disappeared, with each agency repurchasing about 1,000 loans each. 😐 “[Freddie] has come way down [in its loan-repurchase count], and now they’re about the same [as Fannie], and that’s really interesting,” said Richard Koss, chief research officer at Recursion. 👴 🍎 Unfortunately, GSE loan repurchase data is dated, incomplete and hard to compare on an apples-to-apples basis. The GSEs don't release loan-level data with pending repurchase demands, so this is the best we can do without relying on anecdotes. Lenders, what are you seeing of late? You can DM me if you wish to remain anonymous. Of course, there are way more details in Bill's excellent story below so please give it a read!

Happy to share that I'll be speaking with Mike Mills tomorrow live at 4 pm EST/ 3 pm CST to discuss real estate commissions, the large shadow of the DOJ, NAR's future, the 2024 housing market outlook, AI and much more. Make sure to attend tomorrow. Details 👇

Two-thirds of the American public supports upcoming changes to real estate commissions 🙈 💸 , and 70% of agents oppose them, according to a new survey by Clever Real Estate. Let's dive in: 👩💼 Only 15% of agents believe the changes will have a positive impact on their business, while 58% expect negative results. 🤝 👨⚖️ 61% of Americans agree with the NAR lawsuit’s main point that home sellers paying the buyer’s agent commission is unfair and an anti-competitive practice. However, 89% of agents don't believe the lawsuit's allegations are valid. 🤕 82% of Realtors believe the commission changes will hurt home buyers, while 42% believe the changes will also negatively impact home sellers. 🏠 66% of would-be first-time homebuyers indicated that they wouldn’t be able to afford their agent’s commission in addition to the other closing costs and down payment — potentially keeping them out of the market entirely. 📅 56% of agents believe the average number of days a property spends on the market will increase as a result of the settlement.