After fumbling around with TARP (Troubled Asset Relief Program) for too long, attention is finally returning to the fundamental weakness creating and sustaining our current economic woes, mortgages that people cannot afford on homes of insufficient value to provide adequate collateral for those mortgages. The plan that everyone is looking at now is one proposed by FDIC Chairperson, Sheila Bair, to modify non-GSE mortgages that are past due already or projected to become delinquent by the end of 2009. The basics of the proposal call for the government to cover servicing expenses and to share losses if the modified loans subsequently default anyway.
While efforts to address a core vulnerability of the economy must be applauded, this plan like so many others strike me as just another typical bureaucratic response. After all, the goal of any bureaucrat is job security. This is a splendid plan to keep all those operatives in the Treasury Department and FDIC busy for years. There are eligibility requirements to review, tests to be applied, reviews to be conducted, rules to be drafted, standards to be applied, reviewed, revised and then re-applied, re-reviewed, revised again, ... etc., etc., etc.
Why are we not talking about a plan like the one suggested by Drs. Hubbard and Mayer of Columbia Business School as summarized in the October 2d Wall Street Journal (I wrote about it in this blog on October 8)? The elegant simplicity of that plan obviously makes it unworthy of examination. I guess that since the Hubbard and Mayer plan does not involve an army of eager government operatives to administer it can't work. I fear that, despite good intentions, we are on the wrong path again.

So, you don't think title insurance is important.

For decades title insurance was the quiet, back-room side of the real estate industry. It was far from the glow of the spotlight enjoyed by other segments of the business. But, lately, greater attention is being directed our way; and much of that has to do with the writings and work of Hernando de Soto. No, not the 16th century Spaniard who, with Francisco Pizarro, witnessed the conquest of Peru; but, a contemporary de Soto who is wielding even more profound influence on that country than the conquistadors of old. In fact, this modern de Soto's has left his mark on many other countries, as well; from Central and South America to Africa and as far away as the Philippines. Our de Soto is a Peruvian economist and author of the international best-seller, The Mystery of Capital - Why Capitalism Triumphs in the West and Fails Everywhere Else.
Now, what does this have to do with title insurance? Simple. Professor de Soto teaches us that it is the very lack of formal property rights in many parts of the world that is the true source of poverty. Since 1979, de Soto has been studying the complicated and convoluted structures in many countries that present overwhelming obstacles to those seeking to establish ownership of property. He found that these hurdles force the majority of the poor to live and work outside of the established legal system. They build informal structures, arrangements, and understandings recognized generally by their own communities, but of no consequence to any beyond their narrow borders. The gravity of this reality is astounding when you consider that, unless you can firmly prove ownership of any property, you are unable to sell it at a profit, or, more importantly, leverage it to acquire more property, thereby building wealth.
Western legal mechanisms allow owners of property to clearly evidence their titles. This is so deeply entrenched in our economic psyche that we are not always conscious of this crucial aspect of our success. In fact, de Soto thinks that we take our system so much for granted that we have actually lost all awareness of its existence.
Now, when you couple our tradition of establishing enforceable property rights with a written guarantee of protection, you have a very powerful weapon in the arsenal of a vibrant economy.
Title insurance provides the guarantee of protection of property rights. Because of title insurance, real estate titles can be leveraged with greater fluidity and universal acceptance. This allows owners to employ their holdings to acquire more assets, achieve greater goals, and build wealth. When considered in this light, title insurance is at the very foundation of our success as a developed nation and economy. I daresay that we should no longer be thought of as the behind-the-scene player on the real estate stage; but, rather, as the star of the show.

To learn more about de Soto, you may check out the article I wrote in December of 2006 for Metro Chicago Real Estate Magazine and which is posted on the Prairie Title website. You may also want to visit www.alta.org to read a more extensive piece written for the September/October 2008 issue of Title News.

New Proposal Aimed At Housing Crisis

On September 29 the U. S. House of Representatives rejected a plan proposed by the President and Secretary of Treasury designed to free up frozen credit and stabilize panicking financial markets. The plan is now known as the Emergency Economic Stabilization Act of 2008, or EESA, a somewhat euphemistic moniker for the now unpopular and politically dangerous notion of financial bailout.

Immediately thereafter, the stock market plunged by about 750 points.

This seemed to signal a mistake had occurred. Legislators, spooked by what seemed a violent reaction, went back to the drafting table. This time the Senate, knowing how to get bills passed or make sausage (take your pick), loaded up what started out as a 3-page proposal with an additional 448 pages of “pork.”

The stock market in the meantime attempted a modest recovery. Was this a sign we are back on the right track?

On Friday, October 3, the fattened and sweetened Senate version was easily digested by the House and was signed into law by the President within hours of its passage.

The next trading day (Monday, October 6) saw overseas markets tanking and the NYSE lose 8% of value to bring the Dow Jones Industrial Average to its lowest level in over 4-years.

Does this signal that we are not on the right track after all? Perhaps the markets’ reactions tell us that we may only be attacking one aspect of a failing system (or the markets just don’t have as much an appetite for pork as Congress does).

Two noted economists from prestigious Columbia Business School strongly suggest that the place where we should begin to address the vicious downward cycle in financial markets is housing. The cycle started with falling housing values which caused losses in securities backed by housing units. Those losses reduced bank capital. Tightening of credit markets ensued, which caused housing values to fall still further.

In an October 2, 2008 piece written for the Wall Street Journal. professors R. Glen Hubbard and Chris Mayer have articulated a bold yet simple plan to underpin the slide in housing values. Allow homeowners to refinance mortgages on their primary residence into 30-year fixed rate mortgages at 5.25%. For those with property worth less than the outstanding balance of their mortgage, the government could “write-down” the amount owed in exchange for an equity position in the property. This would allow the taxpayers to recover the subsidies and even profit from them when the housing market rebounds. Hubbard and Mayer contend that this program is clearly feasible and may be implemented immediately and at little cost due to the fact that the US government now controls about 90% of the mortgage market.

Now, before jumping to any conclusion and painting these guys as just another two wacky, wild-eyed socialists from academia, note that Dr. Hubbard was Chairman of the Council of Economic Advisors under President George W. Bush.

This may be a plan worth pursuing. I wonder if anyone in Congress has the energy or drive to engage in studying this proposal. Or are they just too groggy from all that pork? What do you think?

Anti-predatory lending database

Since July 1, real estate transactions in Cook County have been subjected to a little added bureaucracy thanks to the Illinois General assembly. On that date, the predatory lending database program commenced. This new law (which is actually an older law redux) requires a certificate to be attached to every mortgage presented for recording. The certificate must either state that the mortgage is in compliance with the program or that it is exempt from the program. Without either an exemption certificate or a compliance certificate, the mortgage is not recordable.

The stated purpose of this program is to reduce instances of predatory lending through increased awareness by borrowers of loan terms. Perhaps this explains why the law was added to the Residential Real Property Disclosure Act and not the Mortgage Act or the Residential Mortgage License Act.

As stated, a mortgage must have a certificate attached to be recordable. Whether the exemption certificate is appropriate or whether the compliance certificate is required depends on when the application was taken, who originated the loan, the type of loan, and the type of property. The following factors would permit the use of a certificate of exemption:

• The application was taken prior to July 1, 2008.
• The loan was originated by an exempt entity. An exempt entity is one that is not required to be licensed under the Residential Mortgage License Act.
• Commercial, vacant, or mixed use property.
• Property containing more than 4 residential dwelling units.
• Investment property (non-owner occupied).
• Government property.
• The loan is a reverse mortgage; or a home equity line of credit not made with a new first mortgage.

All other mortgages will require a certificate of compliance.

So far, there has been little or no experience with the production of compliance certificates simply because of the recent inception date for the program. The closers at Prairie Title report that the process of generating exemption certificates is quite straight forward; and has not been time-consuming. Of course, as more compliance certificates are required, the database will certainly become increasingly burdened. This may result in significantly more time needed to complete closings. Data requirements for compliance certificates are far more extensive.

Because of the increased duties and potential liability imposed on settlement agents, many are charging additional fees or increasing their closing fee for Cook County transaction. Although this may be justified, Prairie Title has decided against assessing any extra costs upon the parties to the transaction at this time. We believe that to fairly determine the impact on our processes and procedures, we need the experience of working under this new program for a while. It is our hope that the database will work so flawlessly and efficiently that no additional charges will ever be necessary. Nonetheless, by working with the program for a while, we will be confident that our fees will be appropriately reflective of the burdens and responsibilities imposed upon us by this new law.

F. Y. I. on the J. L. P.

Many lenders are opting for the Junior Loan Policy (“JLP”) as opposed to the standard ALTA loan policy for their second mortgages and home equity lines of credit (“HELOC”). The principal reason is cost. In competing for borrowers, junior lenders regularly assume all costs associated with these loans. A JLP is significantly cheaper than a standard ALTA loan policy; and, hence, its popularity.

Not surprisingly, however, with the lower cost comes reduced coverage. Care should be taken in deciding in favor of a JLP and lenders should be aware of the limitations on title insurance protection associated with this policy. While certainly appropriate for most junior loans, the expectations of many insured’s may be higher than the coverage actually delivered.

The basic insuring provisions of the JLP provide coverage for loss or damage sustained by reason of only the following:

• The grantee on the policy is not the same person as the grantee on the last recorded document purporting to vest title;
• The land described in the policy is not the same as that described in that same document;
• Any monetary lien recorded in the public records before the date of the policy which affects title;
• Ad valorem taxes or assessments imposed by governmental taxing body constituting a lien on the property and which appear on the official public record of where the land is located.

The JLP also provides coverage over costs of defense, but only to the extent that the insurer does not exercise options under the policy to pay or settle thereby terminating its obligation to defend.

It is most important to note that a JLP does NOT insure that the subject mortgage constitutes a valid lien on the property. The first “exclusion from coverage” on the policy itself states: “Any invalidity, unenforceability or ineffectiveness of the insured’s mortgage.”

This means that the lender is on its own with respect to the documentation it utilizes to create its lien. It should quickly be added, however, that given the extent of standardization in such documents, any concern over validity of the lien is not great. Nonetheless, no coverage exists, even for the very rare instance.

In conclusion, the JLP is a very economical alternative to a full ALTA loan policy for seconds and HELOCS. However, lenders must be aware of the limitations on the coverage provided which underlie the low cost.

Reverse mortgages - tapping into equity for liquidity

This posting is a followup to last week's post about reverse mortgages.

For most seniors, their home is their greatest financial resource. It represents years of hard work and prudent savings. Wouldn't it be great if the value that has built up in the home could be applied to other needs or for well-deserved rewards for a lifetime of hard work?

It used to be that the only way to access that equity was to sell the home. For many, selling the home is not a desirable choice. However, in recent years we have seen the growth of a very viable alternative for those seeking access to the savings accumulated in their homes. A reverse mortgage provides the opportunity to convert the equity in the home into immediately available funds.

As the name infers, this mortgage works in a manner opposite to that of those we are used to. That is, instead of the borrower paying the lender, the lender pays the borrower. As in traditional mortgages, the home is still collateral for the loan.

To qualify for a reverse mortgage, you merely need to be 62 years old and own your home. Credit considerations are very relaxed. The greatest restriction lies only in the percent of the property’s total equity that can be accessed.

Great flexibility exists as to how the proceeds of a reverse mortgage can be paid out. A senior may wish to be paid in one lump sum; or in monthly installments (like an annuity). The loan amount may also be treated as a line of credit which can be accessed only when desired and in varying amounts.

The key is that the reverse mortgage does not have to be repaid until the property is sold or the borrower no longer lives there. The magazine of the AARP offers an easy to follow analysis of reverse mortgages and even provides an interactive calculator to assist interested borrowers in their consideration of whether a reverse mortgage is right for them.

Reverse Mortgages: Turning Equity Into Liquidity

As of July 1, 2006 the U.S. census bureau reports that the resident population of persons age 65 and over was 37.2 million. By 2015, that number is expected to rise to 46.8 million; and by 2020 to 54.6 million.

Residents of Illinois over age 65 on July 1, 2006 numbered 1.5 million (or about 12% of the state’s total population). By 2015, their numbers will grow to 1.78 million (or 13.6% of total population).

Nationwide, almost 81% of persons 65 and older own their home. As of the fall of 2005 that number was 17,818,000. Of those, over 12 million own their homes free and clear. That is, they enjoy 100% equity in their real estate. When you consider that between 2005 and 2006 The National Association Of Realtors placed the median sales price for existing homes at around $220,000, this group of Americans have amassed collective unencumbered wealth of 2.64 trillion dollars.

For most, their home is the single largest plank in their investment platform. They have worked hard, saved, paid off their debt and now sit (literally and figuratively) on an unquestionably secure and valuable asset. The trouble with it is it is not liquid. You can’t chip out a few bricks or take part of the porch to buy a new car, take a vacation, or make a gift to the grand kids.

But what if you could take that otherwise illiquid asset, convert it to cash, and still live in it? Too good to be true, you think. Not so. A reverse mortgage allows these frugal seniors to do just that. It allows them to enjoy the fruits of their hard work and judicious saving without having to deal with selling the property and uprooting themselves from their home of so many years.

Current County Effective Dates

The effective dates at Cook and surrounding counties, as of today, are as follows:

Cook - 4/28/08
Will - 4/1/08
Dupage - 4/25/08
Mchenry - 4/24/08
Lake - 4/24/08
Kane - 4/18/08
Kendall - 3/18/08

Current County Effective Dates

The current effective dates at Cook and surrounding counties are as follows:

Cook - 4/21/08
Will - 3/31/08
Dupage - 4/18/08
Mchenry - 4/21/08
Lake - 4/17/08
Kane - 4/7/08
Kendall 3/7/08

Current County Effective Dates

The effective dates at Cook and surrounding counties in Illinois are as follows:

Cook - 4/14/08
Will - 3/19/08
Dupage - 4/9/08
Mchenry - 4/10/08
Lake - 4/8/08
Kane - 3/26/08
Kendall - 2/27/08

Celebrating Earth Day

Earth Day is celebrated April 22nd. This is a good opportunity to reflect on ways we can make our offices more environmentally friendly.

Just a few steps we have taken to make Prairie Title a "greener" title company:

We recycle our paper and have implemented a procedure to shred and recycle all sensitive documents.

We offer our borrowers copies of their closing packages on CD.

We are certified to offer electronic document signing from lenders offering that option.

We have replaced bottled water in Oak Park with a water filtration system, which saves fuel needed to produce and deliver plastic bottles.

We provide on-line methods of ordering title, as well as electronic document delivery.

Hundreds of sheets of paper are generated throughout the course of a single closing. Let's work together to minimize waste and commit to recycling and help reduce our industry's impact on health of the earth.

Current County Effective Dates

The effective dates at Cook and surrounding counties in Illinois are as follows:

Cook - 4/7/08
Will - 3/12/08
Dupage - 4/1/08
Mchenry - 4/3/08
Lake - 4/2/08
Kane - 3/24/08
Kendall - 2/26/08

Current County Effective Dates

The following are the effective dates at the recorders' offices at Cook and surrounding counties:

Cook - 4/1/08
Will - 3/6/08
Dupage - 3/27/08
Mchenry - 3/28/08
Lake - 3/25/08
Kane - 3/20/08
Kendall - 2/21/08

Current County Effective Dates

The effective dates at Cook and surrounding counties are as follows:

Cook - 3/21/08
Will - 3/6/08
Dupage - 3/20/08
Mchenry - 3/20/08
Lake - 3/19/08
Kane - 3/13/08
Kendall - 2/15/08

Current County Effective Dates

The current effective dates at Cook and surrounding counties are as follows:

Cook - 3/14/08
Will - 2/27/08
Dupage - 3/17/08
Mchenry - 3/17/08
Lake - 3/12/08
Kane - 3/7/08
Kendall - 1/16/08

New City of Chicago Transfer Tax Declaration

The new City of Chicago real estate transfer tax rate goes into effect Tuesday, April 1. Any transfers that take place on or after this date will be subject to the new rate.

Along with the new tax rate, there is a new declaration (form 7551). Be advised that the new form is more complicated, and longer than the old one (7 pages), so it will take additional time to complete. Continue reading about the transfer tax changes on the City of Chicago's website.

Current County Effective Dates

As of today, the current effective dates at Cook and surrounding counties are as follows:

Cook - 3/10/08
Will - 2/20/08
Dupage - 3/11/08
Mchenry - 3/7/08
Lake - 3/10/08
Kane - 2/28/08
Kendall - 12/28/07

Current County Effective Dates

The effective dates at Cook and surrounding counties are as follows (as of today):

Cook - 2/29/08
Will - 2/19/08
Dupage - 3/3/08
Mchenry - 3/3/08
Lake - 3/3/08
Kane - 2/26/08
Kendall - 12/28/07

Amendment to City of Chicago Supplemental Tax Ordinance

As a result of a Supplemental Tax Ordinance enacted by the City Council of the City of Chicago, the transfer tax on Chicago properties will increase. Any transfer taking place on or after April 1, 2008 will be subject to the new tax.

Effective on all transactions on or after this date, the transfer tax amount is increased to $10.50 per $1,000 of sales price.

On March 10, the City of Chicago amended its Transfer Tax Ordinance to spread the increase in the transfer tax of $3.00 per $1,000 to the seller. Therefore $7.50 per $1,000 (City portion) will be paid by the purchaser and $3.00 per $1,000 (CTA portion) by the seller, for a total of $10.50 per $1,000.

Current County Effective Dates

The current effective dates of recordings at Cook and surrounding counties are as follows:

Cook - 2/22/08
Will - 2/26/08
Dupage - 2/26/08
Mchenry - 2/22/08
Lake - 2/27/08
Kane - 2/14/08
Kendall - 12/28/07

Current County Effective Dates

Today's effective dates at Cook and surrounding counties:

Cook - 2/14/08
Will - 1/31/08
Dupage - 2/19/08
Mchenry - 2/15/08
Lake - 2/21/08
Kane - 2/13/08
Kendall - 12/28/07

County Effective Dates

The recording effective dates at Cook and surrounding counties are as follows:
Cook - 2/7/08
Will - 1/30/08
Dupage - 2/11/08
McHenry - 2/8/08
Lake - 2/12/08
Kane - 1/31/08
Kendall - 12/28/07

New Cook County Recorder Fee Schedule

As of March 3, 2008, Cook County Ordinance #07-0-77 goes into affect. This was passed on November 6, 2007 by the Cook County Board of Commissioners, and effectively raised the Geographic Information System (GIS) fee from $3 to $15 dollars per recording.

The new fee structure will be as follows:

• $20.00 for the first two pages
• $2.00 Each additional page
• $3.00 Document Storage Fee
• $15.00 for GIS
• $10.00 for Rental Housing Support Program Surcharge.

It's all curative

How title insurance differs from P&C

Title insurance is a frequently misunderstood business. That is hardly a novel concept, but seldom is it more apparent than when title insurance is compared to property and casualty insurance. Over and over we read that title claims are extremely low when compared to the claims ratios of the P&C world. As a result, some believe that because title insurers pay claims at a much lower rate than P&C insures we must retain virtually all of the revenue from policy premiums. Were that true I’d have retired to a desert island long ago.

Read More (PDF)...

Author: Frank Pellegrini, President, Prairie Title

TitleTalk Article originally published in February 2008 issue of Metro Chicago Real Estate Magazine.

County Effective Dates

Today's County Effective Dates:

Cook - 1/25/08
Will - 1/11/08
Dupage - 1/25/08
Mchenry - 1/25/08
Lake - 1/28/08
Kane - 1/17/08
Kendall - 12/18/07

Current County Effective Dates

Below are the effective dates for Cook and surrounding counties:

Cook - 1/16/08
Will - 1/3/08
Dupage - 1/18/08
Mchenry - 1/18/08
Lake - 1/22/08
Kane - 1/11/08
Kendall - 12/10/07

Current County Effective Dates

As of today, these are the current effective dates at each county:

Cook - 1/10/08
Will - 12/24/07
Dupage - 1/14/08
Mchenry - 1/11/08
Lake - 1/14/08
Kane - 1/11/08
Kendall -12/10/7

Current County Effective Dates

As of today, the effective dates for Cook and the surrounding counties are as follows:

Cook - 1/4/08
Will - 12/20/07
Dupage - 1/7/08
Mchenry - 1/4/08
Lake - 1/7/08
Kane - 12/31/07
Kendall - 11/29/07

Current Effective Dates at Counties

The effective dates at Cook County and surrounding counties are as follows:

Cook -12/27/07
Will - 12/14/07
Dupage - 12/28/07
Mchenry - 12/28/07
Lake - 12/31/07
Kane- 12/21/07
Kendall 11/15/07

Sixty Two Title Companies Adopt Principles of Fair Conduct

Several months ago, as part of the Title Industry Consumer Initiative, the American Land Title Association (ALTA) announced a set of basic ethical principles in the title industry. These fundamental business practices are nothing new to us. We have been conducting business by these standards for many years and, to date, Prairie Title is among 62 title companies nationwide to adopt the ALTA Principles of Fair Conduct.

Current County Effective Dates

The effective dates for each county are as follows:

Cook - 12/19/07
Will - 12/5/07
Dupage - 12/20/07
McHenry - 12/20/07
Lake - 12/26/07
Kane - 12/13/07
Kendall - 11/13/07