Download the 2011 OC’s LARGEST TITLE INSURERS list (pdf)
Orange County’s largest title insurers saw a second straight year of gains in 2010 but remain on the defensive due to expectations of higher interest rates that could bring a slowdown in refinance work.
The county’s 14 largest title companies—which write policies protecting buyers of homes and other real estate from claims contesting ownership—were involved in $32.9 billion worth of work last year, according to this week’s Business Journal list.
That’s up nearly 16% from a year earlier and by more than 80% from a recent low point in 2008.
All but two companies on this year’s list saw year-over-year increases in business in 2010.
The combined number of transactions worked on by companies on this year’s list also saw a second year of sizeable increases in 2010.
The roughly 96,000 transactions reported were up about 20% from a year earlier and nearly double from 2008.
The results reported in 2008 were the lowest total reported by the Business Journal in a decade both in terms of dollar volume and number of transactions.
The low-water mark of 2008 came as the housing and mortgage downturns took full effect.
The industry had been declining more slowly before the recent recession hit, with five straight years of local declines for title companies.
Re-Fi Rebound
Since then, historically low interest rates have brought back mortgage refinance activity, although business tied to new home purchases has remained sluggish at best.
On a national basis, about a quarter of the $1.5 trillion in mortgage originations seen in 2010 were for new home purchases, with the rest being refinances of existing homes, according to data from the Washington, D.C.-based Mortgage Bankers Association.
With interest rates inching up in recent months, industry officials are expecting a steep decline in refinance work over the next two years.
They are holding out hope that the business tied to new home purchases will begin to improve this year and next.
“Tough Year Ahead”
“It’ll be a tough year ahead, but we’re optimistic that we’ll perform well,” said Dennis Gilmore, chief executive of First American Title Insurance Co., a division of Santa Ana-based First American Financial Corp.
Gains in 2010 came despite “a pretty volatile market,” Gilmore said on a conference call with analysts last month, adding that he thinks that this year is “going to still be very volatile.”
The list of title insurers is ranked by the dollar value of OC transactions for 2010.
First American and its affiliated companies ranked No. 2 on this year’s list, with about $7.1 billion worth of transactions here. That was a 17% increase from year-ago levels.
Jacksonville, Fla.-based Fidelity National Financial Inc. retained the No. 1 spot in this year’s list. The company and its numerous affiliated businesses—five are represented in this year’s list—worked on $12.2 billion worth of transactions last year in the county, a 3.5% increase over year-ago levels.
Information for the list was provided Santa Ana-based CoreLogic Inc., which last year split from First American into a separately traded company that provides data to mortgage and financial companies.
The split of First American and CoreLogic had a big effect on the employee count seen in this year’s list, with First American reporting a nearly 27% drop in its number of local workers.
Companies on the list reported employing about 3,000 people here, an 18% decline from a year ago.
Without counting First American employees who moved to CoreLogic, employment fell by only about 2%.
Eyes on Expenses
First American and Fidelity combine for about 47% of the region’s business and executives with both companies said they’re keeping a close eye on expenses and headcounts in preparation for a slower 2011.
“We’ll be in a position to make the necessary adjustments as we go through what the MBA says is going to be a reduced origination market” in 2011, said George Scanlon, Fidelity’s chief executive, speaking to analysts during his company’s most recent earnings call.
The trade group predicts total mortgage originations in the U.S. to fall by about a third, to just under $1 trillion, in 2011 compared to 2010.
Declines in refinance work account for the drop, the group’s economists predict.
With 30-year fixed mortgage rates predicted to rise about half a percentage point this year, to an average of about 5.2%, refinance work should fall from the $1 trillion level seen in 2010 to a little more than $400 billion this year.
2012 Outlook
By 2012, with 30-year interest rates expected to be closer to 6%, refinance work is expected to contract to just about $233 billion, according to the Mortgage Bankers Association’s forecast.
On the upside, new home purchases are expected to increase nearly 30% year-over-year in 2011, to about $600 billion. They could rise to about $730 billion in 2012, according to the MBA’s most recent forecast, released this month.
New home work typically is a more profitable business for title companies.
“If the MBA is correct, it means that we’ll have a falloff in the refinance volume and an increase in the purchase (volume), so our fee per file will increase,” Fidelity’s Scanlon said.
“The key to the forecast is the 30% increase in purchase volume,” Gilmore said. “Now if that comes to reality for us, I’ll be optimistic for the year.”
This month and April will serve as measuring sticks for the state of the for-sale industry as results from the spring selling season start to come in, according to Gilmore.
“Early indications are that our purchase business is up, but time will tell on that,” Gilmore said.
