Business for Orange County’s largest title insurers plummeted last year as refinance activity significantly declined.
The county’s 13 largest title companies—which write policies protecting buyers of homes and other real estate from claims contesting ownership—were involved in $27 billion worth of work, according to this week’s Business Journal list.
That’s a nearly 30% decline from 2013, when the area’s 14 largest title companies and their affiliates reported working on $37.9 billion in transactions.
Last year’s list included one extra stand-alone entry than this year’s, for the Irvine office of LSI Title Co. LSI now operates under the umbrella of Jacksonville, Fla.-based Fidelity National Financial Inc. and goes by the ServiceLink name following an acquisition announced in 2013.
The number of transactions last year, including new-home orders, refinances and commercial property work, also dropped steeply. Title companies completed nearly 70,000 transactions in Orange County, down about 32%.
The list is ranked by the dollar value of OC transactions for the year and consolidates the results of multiple businesses that operate under the same parent companies.
n Only two companies had year-over-year increases in work: No. 4, Title365 Co. of Newport Beach, whose volumes increased 3.2% to $1.4 billion, and No. 8, Western Resources Title of Orange, which reported a 6.6% increase to $948 million.
n Work performed by the top two companies on the list—Fidelity National Financial and First American Financial Corp. in Santa Ana—made up the bulk of that reported here last year, as in past years.
The combined dollar value of work reported in OC by the two largest title insurers in the county and country was $17.4 billion and represents two-thirds of the activity reflected on the list.
Fidelity National retained the No. 1 spot, despite a 37.8% drop in work reported here last year. First American had a 26.4% decline in local work.
Rising Rates
It was the second year in a row companies reported overall declines in business. Rising interest rates and a subsequent decline in refinance work are the primary culprits for the volume drop.
A typical 30-year fixed mortgage with 0.5 points hovered between 4.1% and 4.5% for much of last year and the second half of 2013 after dropping well below 4% for the prior 12-month period, according to data from the Federal Home Loan Mortgage Corp.
There was a “significant decline in refinance activity during” 2014, said Dennis Gilmore, chief executive of First American.
The good news for First American and Fidelity National is that other key parts of the real estate industry, particularly the commercial real estate market and the market for new homes, are on the upswing.
Those two title companies also reported improved efficiencies in their title insurance business, making their refinance work more profitable, though volumes were down.
“Our purchase revenues were up 5%, and our commercial business had a record year, with revenues up 9%,” Gilmore said last month during his company’s latest earnings call with analysts. “The growth in both of these businesses helped to offset the significant decline in refinance activity during the 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.
Improved efficiencies and more work from the more profitable commercial real estate business sector meant that Fidelity National was able to “generate strong margins in the title business in a somewhat sluggish real estate environment,” Chairman William Foley told analysts last month.
“We continue to believe that we can generate even higher margins as mortgage credit becomes more regularly available and if the residential real estate market continues to improve,” said Foley, whose company has long vied with First American for the country’s largest title insurer title.
Early projections have title companies optimistic that 2015 will be a strong year for work related to new-home purchases, which are also a much more profitable source of business than handling home refinance transactions.
The Mortgage Bankers Association “is projecting at least a 15% increase” in purchase transactions in 2015 over 2014, Foley said. “We’ve got the footprint, we’re ready to go, (but) we just need a larger market.”
“Our full-year expectation is for modest growth with some increase in transaction levels and continued home-price appreciation,” First American’s Gilmore told analysts.
“Given the backdrop of an improving economy, we remain optimistic that the housing market will continue to strengthen in 2015.”
