With mortgage rates declining, homeowners are once again running the numbers to see if it makes sense for them to refinance their homes. As they do so, they are encountering one aspect of the American economy that has been the least affected by computer technology, but one that could benefit from it the most. Don’t hold your breath for any changes, though.
The issue involves “title.” Before lending you money to buy a piece of property, a bank obviously needs to know the legal status of the property–who owns it, under what conditions, if there are any sorts of liens or holds on the property, and the like. Many decades ago, especially in parts of the country with younger histories, this might have been a tough question to get a good answer to. Government record-keeping might have been spotty; surveyors might not agree on a parcel’s exact borders; two or more parties might claim ownership of a piece of land.
But that was then. Now we have an exceedingly mature private property system, and most of the uncertainty has been removed from real estate. There are recorders, usually at a county level, that maintain property ownership records. If you want to know who owns a piece of land, just grab the folder for it. And since the relevant documents might long ago have been computerized, you can often do this sitting at a computer terminal, or even on the Web.
It doesn’t sound like an especially complicated undertaking, and it shouldn’t be. Yet nearly every time you refinance a home, you end up spending in the neighborhood of $2,500 for the title. The money goes to a title company to conduct a title search, and then to offer insurance in case that search wasn’t done properly.
This might have been necessary in Wild West days, when parcels would change hands during poker games; in the 21st century, it’s not. So why does it persist? In large part because title companies, which make a great deal of money
off the current arrangement, have enormous political clout in state capitals. Most states regulate their title industries, but it’s the title companies that are doing the regulating–and they use their clout to block all efforts at reforming the way things get done.
For example, they have typically blocked efforts by tech-oriented businesses that want to fully automate the title system, turning it into what it should be–a modern computer database that can be searched instantly, by anyone and for little cost. One of the great ironies of buying a home is that your credit score–which involves dozens or even hundreds of data sources–is available in seconds, and not from one company, but three. By contrast, information about who owns your house takes many days, and you get the answer only after spending thousands of dollars.
Of course part of the money you spend on the title pays for insurance, in case some problem crops up down the line with the chain of ownership. Banks want to be protected from that risk, but it’s hard to believe the risk is anywhere near as great as the steep premiums would imply.
There are any number of technology companies targeting the real estate market–or at least there were, until the housing bubble popped. Most of them, though, are focused on a relatively easy part of the process, involving the listings of properties for sale and the percentage fees charged by real state agents.
But title-related costs can easily add up to half the fees associated with a mortgage; they are one of the reasons it costs as much as it does to sell a house. Changing the title system involves not just developing new technologies, but also fighting pitched political battles against the special interests that profit from the current, quite antiquated hodge-podge of a process.
Technology in some cases is a mixed blessing, but here, it would be an unambiguous success.
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