Title Insurers See 56% Jump;Driven by Uptick in Refinancing

The county’s 15 largest title companies—which write policies protecting buyers of homes and other real estate from claims contesting ownership—were involved in $29.2 billion worth of work, according to this week’s Business Journal list.

This was up nearly 56% from a year earlier and reversed five straight years of local declines.

The list is ranked by the dollar value of OC transactions for 2009.

The number of transactions—including new home orders, refinances and commercial property work—also saw a sharp increase from the prior year’s levels. The roughly 82,000 transactions completed by companies on this year’s list was up about 61% from a year earlier.

Besting 2008’s numbers wasn’t too difficult.

The $18.1 billion from OC transactions reported in the prior year’s list was the lowest total reported by the Business Journal in a decade. Only two companies on that list saw year-over-year increases in dollar value of OC transactions, due to the imploding housing and mortgage industries.

This time around, all but two title companies on our list posted increases in dollar value of OC transactions, buoyed in large part by home refinancing levels that returned close to those seen in 2007, as well as consolidation among title insurers.

Work related to the sales of new homes and existing homes also saw an uptick in business last year. Home sales in OC increased nearly 15% in 2009 from 2008, according to San Diego-based MDA DataQuick, a unit of Canada’s MacDonald Dettwiler and Asso-ciates Ltd.

Tough Road Ahead

That’s the good news.

Here’s the bad: Most industry officials are preparing for a tough year, or years, ahead.

“We continue to operate in a challenging business environment,” said Dennis Gilmore, chief executive of the financial services division of Santa Ana-based First American Corp., which includes the company’s title insurance operations.

The Washington, D.C.-based Mortgage Banker Association projects about a 40% year-over-year decline in mortgage originations this year, from the $2.1 trillion in originations that was estimated to have occured in 2009 to $1.3 trillion this year. The trade association also expects sales and refinances to remain below the sluggish levels of 2008 for at least the next three years.

Changing market dynamics are one reason that First American is looking to spin off its dominant title insurance business into a separately-traded company, while keeping its growing mortgage and information groups under the current operating company.

That planned transaction, in the works for nearly two years, is expected to close by June, officials for First American said late last month.

Preparing for the spinoff, First American’s been focused on keeping expenses in line and improving profit margins for its title insurance operations the past few years at the expense of overall market share.

The company was the country’s largest title insurance shop near the peak of the market, but it now is ranked No. 2 with about 28% market share in the U.S., behind Jacksonville, Fla.-based Fidelity National Financial Inc.

In addition to its spot atop the industry nationwide, Fidelity National was also the largest title insurer in OC last year. The dollar value of its local transactions, and those of affiliate companies, was $11.8 billion in 2009. That’s up 75% from a year earlier.

Fidelity’s gains last year were boosted in part by a few acquisitions, including buying most of the assets from LandAmerica Financial Group Inc., previously the country’s third-largest title insurer. LandAmerica went bankrupt in late 2008.

Without Fidelity’s jump, the remaining 14 insurers saw a 45% gain in dollar value of OC transactions in 2009 to $17.4 billion.

First American

First American retained the No. 2 spot on our list last year. The company—OC’s oldest business—saw the dollar value of its local transactions jump nearly 48% last year to $6.1 billion.

First American’s local results in 2009 stand in contrast to its nationwide title insurance revenue, which was off about 8% from a year earlier.

While cutting back elsewhere, California’s been a key market for growth for First American, according to Gilmore. Activity for the company’s title operations in the state are currently up about 9% on a year-over-year basis, he told analysts following the company’s recent fourth-quarter earnings report.

“I’m encouraged that the California market is starting to show some early signs of stability and recovery,” Gilmore said.

That optimism isn’t echoed for the country at large.

The Mortgage Banker Association expects originations for home purchases to inch up about 5% in 2010, with $776 billion of business. But refinancing is expected to drop more than 60% to $502 billion in 2010 as mortgage rates increase.

The MBA expects mortgage rates to rise by about 1% by the end of 2010 to a little more than 6%, largely due to the Federal Reserve ending its mortgage-backed security purchase program, as well as other liquidity facilities begun during the financial crisis.

The Federal Reserve reportedly has about $100 billion remaining under its commitment to buy $1.25 trillion in mortgage backed securities.

“Yields on mortgage securities will need to increase to get private investors back into the market once the Fed stops its purchases,” MBA officials said in late February.

The higher rates likely will reduce refinancing work for banks, brokers and title insurers, among other businesses.

Originations aren’t expected to pick up any time soon. The MBA projects originations to total $1.2 trillion in 2011 and $1.4 trillion in 2012, with business tied to purchases, rather than refinance work, making up the bulk.

Mortgage originations totaled about $1.5 trillion in 2008 and $2.3 trillion in 2007.