Orange County’s largest title insurers’ business picked up last year, and they’re preparing for another active year in transaction volume and potential industry consolidation.
The county’s 17 largest companies that write policies protecting real estate buyers from claims contesting ownership handled $38.5 billion worth of work last year, based on this week’s Business Journal list.
That’s up nearly 43% over 2014, when the area’s 13 largest title companies and affiliates reported working on $27 billion in transactions, and reverses two years of declines.
Business increased across the board for ranked companies in new-home orders, refinances and commercial property work. They completed nearly 95,000 local transactions, up about 36% year-over-year.
“2015 was a good year for First American,” said Dennis Gilmore, chief executive of Santa Ana-based First American Financial Corp., which retained the No. 2 spot on the list with $9.4 billion in work here.
First American, formed in 1889, is Orange County’s oldest business. It has 1,659 employees at its headquarters off the Costa Mesa (55) Freeway, about 43% of local title insurance workers represented on the list.
Companywide revenues related to new-home purchases were up 11% at First American as the housing market continued to recover across the country, particularly in California, Gilmore told analysts on the company’s latest earnings call in February.
Refinancing revenue “surged” 29% at First American due to a decline in mortgage interest rates early in the year, Gilmore said. Also, “our commercial business had a record year, with revenues up 17%,” he said.
First American’s local work increased 33%. Meanwhile, Jacksonville, Fla.-based Fidelity National Financial Inc.’s affiliated businesses had a 41% work increase and retained the
No. 1 spot on the list.
“California’s coming back real strong,” Fidelity National Chief Executive Raymond Quick told analysts last month.
The list is ranked by the dollar value of OC transactions and combines the results of multiple businesses that operate under the same parent companies.
Work performed by Fidelity and First American—the two largest title insurers in the county and in the U.S.—made up 62% of the activity reflected on the list, or nearly $24 billion.
Data was provided by Irvine-based CoreLogic Inc., which was spun off from First American in 2010.
Mergers Foreseen
The list has four new entries. All but one of the 13 repeating entries posted year-over-year growth in work.
Next year’s list could well be shorter; executives at the top two companies in the industry predict another round of consolidation.
“There are certain larger transactions in our space that we’ve been looking at,” Fidelity National Executive Vice President Brent Bickett said last month.
Deals are looking more attractive to Fidelity National, with stock prices down for potential acquisition targets this year and the company’s strong cash balance and borrowing capacity, Bickett told analysts.
“Clearly, it’s a better market now to be buying things (than) in mid-2015.”
A lot of change could come at the top, First American’s Gilmore said.
“I think it’s feasible that you could get a consolidation of some combination of the top four underwriters. But it will be completely deal-specific, and it will be a very difficult deal to be done” due to possible antitrust concerns, he said.
“For us specifically, we are always looking for tuck-in acquisitions in our key states to grow our footprint if they make sense and they get the necessary return for us.”
Larger deals “would simply depend on the situation,” he added.
Regulatory Impact
This year looks to be another one of growth, thanks to low interest rates, an improving housing market, and continued commercial market strength. The Mortgage Bankers Association is projecting a nearly 6% increase in transactions year-over-year.
In general, title companies earn about $1,000 for every home refinance transaction they work on, and home purchases can bring nearly double that. Title fees for commercial transactions can reach $10,000 or more, depending on the transaction size.
A typical 30-year fixed mortgage with 0.5 points stood at about 3.65% as of late February after ranging from 3.7% to 4.1% for much of last year.
Despite “uncertainties in the economy, we remain optimistic that the housing market will continue to strengthen in 2016,” Gilmore said.
OC companies on the list reported a 3% increase in employees over the past year to 3,816.
Part of the increase was due to the growth forecasts, although some short-term staffing increases appear to be the result of new federal regulations.
In October, a modification to the mortgage process called TRID took effect, with the goal of making mortgages more transparent for consumers.
TRID, which also is known as the TILA-RESPA Integrated Disclosure rule, last year resulted in title companies installing new technologies and introducing new procedures. First American said the changes resulted in $20 million in capital expenditures by the company last year.
“2015 will be remembered as the year of TRID for the title industry, bringing more processing technology changes than we have seen in decades,” said Matt Morris, chief executive of Houston-based Stewart Information Services, No. 11 on the list.
Fidelity National officials said the company had “somewhat higher” personnel costs in the fourth quarter due to TRID, though they expected employee counts to drop slightly as the company grows more comfortable with the new disclosure law.
Title insurers that deal with high-priced home sales also could come under additional scrutiny if a new federal program expands its reach to Southern California.
In January, the Treasury Department announced it would start identifying and tracking buyers who secretly purchase high-end properties in cash transactions over concerns about potential money laundering.
The program is kicking off in Manhattan, where title insurance companies are required to identify the true owners of shell companies paying more than $3 million for a home, and in Miami, where sales over $1 million must be reported.
The initial program will run through August. The Treasury Department hasn’t announced additional locations.
