First American Financial Corp. published a data-driven analysis of the vital role the title insurance industry plays in protecting the smooth functioning of the real estate economy.
The white paper by First American Chief Economist Mark Fleming, “What is the Risk of Not Curating Property Ownership Records?,” estimates the title insurance industry’s work to maintain accurate and reliable property records mitigates $600 billion to $900 billion annually in risk exposure to homebuyers, lenders and other participants in real estate transactions.
Curative work conducted by the title industry, which includes aggregating and organizing disparate sources of data affecting real property, identifying and remediating risks, and helping resolve errors in the public record, is necessary to clearly and reliably trade property rights and ownership in a real estate transaction, Fleming said.
“The U.S. residential real estate market accounts for a significant share of the total economy, but it relies on a public good – reliable, accurate real property records – that the title insurance industry plays a critical, but largely misunderstood, role in maintaining,” he said. “It is the industry’s efforts to mitigate title risk exposure that maintains the reliability and accuracy of property ownership records underpinning the real estate economy. When the price of maintaining a smooth-functioning real estate economy is just pennies on the risk-dollar, do we really want to jeopardize that and risk diminishing the economic benefits it provides?”
Other key conclusions by Fleming in the white paper include:
- Annually, prior to the pandemic, the title industry’s estimated pre-curative risk exposure ranged from $600 billion to $900 billion a year.
- During the boom in sales and mortgage refinancing during the pandemic, total estimated industry risk exposure surpassed $1 trillion a year.
- The degradation over time of public records, if not curated, will cause the marketability of title to become less clear and increase the burden of defending property rights in court.
- The price for curating the public record and insuring ownership rights relative to the total estimated risk exposure is small.
“The economic success of the United States can partly be attributed to the establishment of well-defined property rights, which is crucial to fostering sustainable economic growth, democracy, and the prosperity of the capitalist system,” Fleming said.
“The strong emphasis on property rights enables the real estate economy to function effectively and transparently, but it relies on a public good; the real property records. It is the title insurance industry’s efforts to curate that public good and mitigate title risk exposure in those records that maintains existence of reliable and accurate property ownership records.”
The full white paper can be viewed here.