By Steve Napolitano

Paper currency works in modern economies because consumers have a level of trust: The value reflected on that paper is something you can take to the bank, literally.

Similar to that guarantee between the government and its citizens, the nation’s real estate industry functions because of the trust created by title insurance – if not a guaranteed trust between purchaser and seller, the assurance that the buyer is protected from hidden liens, disputed ownership and other pitfalls.

Despite playing this essential role and bringing safety and sanity to a vital economic sector, the title insurance industry has done a lousy job of communicating what it does, why it’s important and how it helps generate investment and job growth.

Also lost is the fact that title insurance is a valuable credit enhancer. Analysts note that capital markets can price risk at lower levels by insuring ownership, which provides additional comfort to lenders, who’ll be prepared to offer loans at lower rates.

That credit enhancement extends to the secondary market and the commercial mortgage-backed securities market, allowing lenders to recycle their cash so they can lend capital again and sustain economic growth. On the CMBS side, the credit enhancement protects bondholders against ownership risk, thereby protecting them against collateral loss.

Appropriately, Gov. Andrew Cuomo is focusing on title insurance by proposing to lower real estate closing fees and impose new agent-licensing requirements, aimed more at the residential title-insurance holder than the commercial property owner (most claims are on the residential side).

This aspect of the governor’s budget proposal will be studied closely by the industry. From an actuarial standpoint, residential title insurance is where one would raise rates, but because New York has such high- valued commercial real estate title companies can subsidize the residential rates and keep them lower.

Title insurance companies can’t tell their story without falling victim to arcane jargon, but the industry’s benefits far outweigh any spreadsheet. We leveraged this power to create a real estate-based economy that’s the envy of the world. Now we need to employ that success in telling our story to the very people who reap the benefits.

Napolitano is the CEO of New York-based First Nationwide Title Agency.
Napolitano is the CEO of New York-based First Nationwide Title Agency.