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?