Business for Orange County’s largest title insurers took a step back in 2013 as rising interest rates brought about a steep drop in refinance work during the second half of the year.
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 $37.9 billion worth of work, according to this week’s Business Journal list.
That’s down by nearly 13% from 2012, the best year for title companies since the recession in terms of overall activity.
All of the companies on the 2012 list had gains in business, but all but four on this week’s list reported year-over-year declines in activity as interest rates began to tick up in mid-2013. “Refinance volumes were strong in the first half of 2013 but declined sharply throughout the second half of the year,” said Dennis Gilmore, chief executive of Santa Ana-based First American Financial Corp., which retained the No. 2 spot on the list.
Interest rates have risen nearly a percentage point from early 2013 levels.
A typical 30-year fixed mortgage with 0.7 points stood at about 4.43% at the start of the year compared to 3.41% in January 2013, according to data from the Federal Home Loan Mortgage Corp.
Rates edged down slightly to 4.3% as of February, according to Freddie Mac.
The percentage point increase in interest rates has resulted in a drastic decline in refinance volumes. Last quarter, First American’s closed refinanced orders declined 61% from fourth-quarter 2012 volumes.
The number of transactions—including new home orders, refinances and commercial property work—also dropped steeply from the prior year’s levels as refinance work dried up.
Title companies completed nearly 103,000 transactions last year in Orange County, down about 19% from a year earlier.
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.
Work performed by the top two companies on the list—Jacksonville, Fla.-based Fidelity National Financial Inc. and First American—made up the bulk of the work 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 country was $23.7 billion, roughly 63% of the activity reflected on the list.
Year of Transition
The rising interest rates have forced title insurers to adjust their businesses to nonrefinance work, company executives said.
The past year marked “a year of transition in our title insurance business as we continued to move from a refinance-driven market towards what appears to be a more purchase-driven market,” said William Foley, Fidelity National’s chairman, during an analyst call last month.
The company retained the top spot on the list despite a combined 11.5% decline in business for its five affiliate companies that do work here.
Last quarter, about 55% of Fidelity National’s orders were for new home purchases compared to about 32% in the fourth quarter of 2012.
The good news is that the purchase title orders are generally more expensive and therefore more profitable for title insurers.
Fidelity National increased its fee per file in last year’s fourth quarter by 33% over year-ago levels to $2,082.
First American also benefited from higher premiums for purchase orders. Its average revenue per direct title order increased by about 34%, officials said last month during their latest earnings call with analysts.
Also on the upswing: title insurance business tied to commercial real estate activity.
Last year, commercial revenue for First American “grew by 23%, its strongest year ever,” Gilmore said.
He said the company is expecting to see more commercial-related title activity this year, albeit at a slower pace than last year’s growth.
Trend Continues
Projections by the Mortgage Bankers Asso-ciation call for purchase originations to total about $663 billion this year, a 1.7% increase over 2013, and for refinance originations to be $440 billion, a 60% decrease from 2013.
The current projections for purchase originations “might be a little pessimistic,” Gilmore told analysts last month.
“However, the strength of the purchase market will not be evident until we enter the spring selling season,” he said. As a result, “we will continue to focus on gaining profitable market share and aggressively managing our expenses.”
First American said it cut its companywide head count by about 1,300 positions in the last half of 2013, although its reported employee count in OC remained stable at about 1,500 over the past year. It doesn’t break out employee numbers for its headquarters.
The 14 companies on the list reported employing 3,377 people in OC for their title operations as of last month, a 2.1% decline from a year earlier.
