Title insurers continued to see a decline in business last year, a trend they hope will stabilize in 2019 and end two years of consecutive losses.
The 16 largest title companies with operations in Orange County—which write policies protecting buyers of homes and other real estate from claims contesting ownership—handled $27.3 billion in transactions in the area, according to this week’s Business Journal list. That figure is down 20% from 2017.
The number of OC transactions those companies worked on also dropped 20% last year to 59,366—largely a result of declining residential refinancing-related work.
Some good short-term news beckons for the industry. After averaging 4.6% in 2018, the 30-year fixed-rate mortgage has been steadily decreasing since the beginning of the year, according to a recent report from mortgage buyer Freddie Mac. It’s now about 4.35%.
The agency said this average could creep back up to the 4.6% range by the end of the year, before increasing to 4.9% in 2020.
A typical 30-year fixed mortgage with 0.5 points ran well under 4% as of six years ago or so.
Lower mortgage rates in the early part of the year should boost the recently slumping housing market, for new and existing home sales.
After dipping in 2018, single-family mortgage originations are projected to rise 2.6% to $1.7 trillion in 2019 and remain at that level in 2020, though the refinance share of originations will decrease.
Interest rate hikes are likely to slow in the near-term, with little expectation that an increase will come at the Fed’s next meeting this month.
In a recent speech, Federal Reserve Bank of Boston President Eric Rosengren said the committee is in a wait-and-see mode after the fourth quarter saw economic risks, like rising stock volatility, falling oil prices and long Treasury rates.
“It may be several meetings of the Federal Open Market Committee before Fed policymakers have a clearer read on whether the risks are becoming reality—and by how much the economy will slow compared to last year,” Rosengren said.
Top 2
Perennial No. 1, Jacksonville, Fla.-based Fidelity National Financial, ranked among the largest title insurers. Together with No. 2, Santa Ana-based First American Title Insurance Co., they represent 65% of transaction volume on the list.
Data was provided by Irvine-based Core-Logic Inc., which was spun off from First American in 2010.
The top title insurers are hoping 2019 will bring a more stable backdrop for its businesses after the rocky end of last year.
“I believe that the market is just really in the process of resetting,” said First American Chief Executive Dennis Gilmore during an earnings call last month, pointing to slowing home price appreciation and an increase in supply and days on market as signs of change in the housing market.
First American posted $6.3 billion in OC transaction volume last year, down 31% from 2017. It anticipates the purchase market to continue to be under pressure in 2019, which led it to “aggressively trim” its expenses, including over 100 job cuts last year to its expansive headquarters just off the Costa Mesa (55) Freeway.
During the fourth quarter, refinance revenue dropped 33% “as the market continued to adjust to increasing mortgage rates,” Gilmore said.
Refinance revenue accounted “for 8% of our direct revenue in the fourth quarter, down from 13% a year ago,” he said.
Revenue from its residential purchase business, a line of work that represents more profit for title insurers, fell 5% in the fourth quarter while open purchase orders fell 4%. The downward trend has carried over into 2019, with orders down 4% and 6% during the first two months of the year.
“We anticipate that the ongoing decline in the purchase market will be a headwind in 2019, but will be partially offset by rising investment income,” Gilmore said. “We also expect our commercial business will deliver another strong year.”
In general, title companies earn about $1,000 for every home refinance transaction they work on, while home purchases can total nearly double that. Title fees for commercial transactions can reach $10,000 or more, depending on the transaction size.
Fidelity National’s varied business interests in OC posted a roughly 15% drop in transaction volume here to $11.4 billion, a similar end to 2018.
“We did experience some softness in the residential purchase market in the fourth quarter, as purchase orders closed declined by 6% versus the prior year and 8% on a per day basis,” said Chief Executive Raymond Quirk. This resulted in about a 5% cut in the company’s base of workers during the fourth quarter, he said.
“We ended 2018 with approximately 1,050 or 9% fewer employees in our field operations than at the end of 2017.”
Fourth-quarter revenue of $1.7 billion was down 11% from the year prior, with the title segment generating all but $38 million in revenue, according to Fidelity, which has 8 business lines under its umbrella that are included on this week’s list.
Of the four companies that saw an increase in OC transactions, Pennsylvania-based Westminster Title Co. reported the highest jump of 33% over 2017, moving up three spots to No. 10.
