Santa Ana-based First American Corp. on Thursday said its third-quarter profit dropped 48%, due to declining revenue in its core title insurance business.
The company said net income fell to $46.6 million from $90.4 million a year earlier. Revenue fell 6% to $2.1 billion but beat analysts’ expectations of about $2 billion.
“Sharp declines in mortgage originations created a challenging operating environment,” Chief Executive Parker Kennedy said.
The earnings report came the same day that New York Attorney General Andrew Cuomo said that he has sued the company, alleging that one of its business units colluded with Washington Mutual Inc. to inflate the appraisal values of homes.
The lawsuit was filed in New York Supreme Court. Washington Mutual was not named as a defendant in the case, which targets First American subsidiary eAppraiseIT.
“First American helped set the current mortgage crisis in motion,” Cuomo said in a statement.
The lawsuit adds another distraction to First American’s already busy plate. The company said in its earnings release that it expects to see continued weakness in real estate and mortgages, which will impact its title, flood certification, appraisal and mortgage data businesses. As a result, it plans to focus on cutting expenses in the short-term.
Revenues for the company’s core title insurance segment declined 9% to $1.4 billion in the quarter, a result of declining mortgage originations. Title insurers provide insurance to protect homeowners against property claims.
The company is working hard to cut costs in this segment, and has reduced staff by some 2,000 people in the quarter, Kennedy said. The average revenue per title order increased to $1,737, or 7%, compared to a year ago.
First American said it expects to pay $7.2 million of an estimated maximum $20 million of insurance claims from the recent California wildfires. Reinsurance carriers will cover the rest.
Shares of the company were largely unchanged on the news in early Thursday trading. The compnay counts a market value of about $2.9 billion.
