Santa Ana-based First American Corp.’s plans to separate its information services business from its struggling title insurance company remain on hold as the company continues a major restructuring to ride out the ongoing mess in housing and mortgages.
Executives hope the retooled business will be better poised to take advantage of a growing amount of refinancing work, foreclosure-related business and government-mandated loan modification work.
“The result of the reorganization is enhanced operating leverage for when volumes turn around,” Chief Executive Parker “Park” Kennedy said.
First American,Orange County’s largest real estate-related business, both in terms of revenue and employees,spent much of 2008 slimming down and trimming costs.
The company cut some 5,700 jobs during the past year, or about 20% of its workforce, according to Kennedy.
About 4,300 of last year’s job cuts were in First American’s core title business, which writes policies protecting home and other real estate owners from competing claims of ownership.
Employee counts at First American’s title business are down 42% from their highest levels in June 2006.
About 500 offices were closed across the country as the company looked to consolidate operations and cut costs. That represented 26% of the company’s operations, Kennedy said.
“We responded aggressively and decisively to restructure our company in the face of a very difficult economic environment,” Kennedy said.
The personnel and office closures saved First American nearly $300 million last year.
But restructuring and other charges have made profits elusive. First American,which had a recent market value of about $2.3 billion,put the wraps on a tough 2008 by reporting its fourth-quarter results last week.
It posted a $66.9 million net loss for the quarter, driven by charges. Without them, the company saw a profit of $9.3 million, better than what Wall Street had expected.
Fourth-quarter revenue fell 28% from a year earlier to $1.4 billion. For all of 2008, the company posted revenue of $6.2 billion, a 24% drop from 2007.
Revenue at the company’s dominant title division,which makes up about two-thirds of the business,was down 32% in the fourth quarter to $812 million as fewer policies were issued and prices fell.
Business at First American’s information solutions group, whose data services are used by mortgage companies, homebuilders and other real estate businesses, was off about 14% for the year.
“Many of our markets contracted, and some of our clients disappeared,” said Frank McMahon, chief executive of the company’s information solutions group.
Last year’s results could have been worse. One of First American’s main competitors, Virginia’s LandAmerica Financial Group Inc., filed for bankruptcy in November and sold off much of its business to First American’s main competitor, Fidelity National Financial Inc. of Jacksonville, Fla.
LandAmerica counted about a 15% market share of the national title business before its implosion. First American said it’s trying to grab some of that business.
Looking Up
There have been other encouraging signs of increased business in the past few months, company officials said.
In October, First American’s title business was seeing about 5,400 orders per day. By January, orders topped 10,000 a day. In February, they were 8,800 a day.
But most of those orders are for refinance work, which is less profitable.
First American could get a boost locally if a state application to raise title rates by about 10% in California is approved in a few months.
It’s looking to increase prices in most of its largest markets, officials said last week during a conference call with analysts.
The company’s also looking to grab more work tied to loan modifications of distressed home mortgages. First American is expecting to see some 4 million loan modifications across the country next year.
The company’s in advanced talks with seven of the country’s top 10 loan servicers to provide front-end analytics, income verification, processing work and other services to those companies for that type of work, McMahon said.
It’s been a little more than a year since First American announced plans to spin off its financial services operations, including its title insurance business, into a separate publicly traded company.
The company’s title insurance and specialty insurance reporting businesses would be the core of a newly created public company called First American Financial Corp.
Originally, the plan was to complete the spinoff by the third quarter of 2008. That date was soon postponed as the market deteriorated.
A time frame for when the spinoff could occur is undetermined.
“We’re still committed to the separation of businesses,” Kennedy said.
But it will take signs of stability in the market,lasting several months, or perhaps a couple quarters,before the company opts to move forward, he said.
“It’s a bit of a waiting game,” Kennedy said.
