Title insurance executives are confident the Biden proposals won’t come to much

Rising mortgage rates and a slower housing market than anticipated contributed to the weaker financial performance of the title segments of some of the nation’s largest title firms during the first quarter of 2024. Last week, big four members First American, Old Republic and Stewart all announced their earnings. Final big four title firm Fidelity National Financial will announce its financial results later in May.

First American

First American was the first to announce its results, hosting an earnings call with investors and analysts last Wednesday. During Q1 2024, First American recorded a total of $1.4 billion in revenue, down 1% year over year and a net income of $46.7 million, up from $45.9 million recorded year ago. The firm’s title segment did not perform as well, however, reporting revenue of $1.319 billion, down from the $1.349 billion recorded a year ago, and a pretax income of $72.7 million, down from $88.2 million.

These decreases came as the total number of title orders opened during the quarter fell from 172,600 in Q1 2023 to 155,500 in Q1 2024. Despite the overall drop, the number of commercial orders rose slightly from 25,600 last year to 25,800 this year. Additionally, the average revenue per direct title order rose to $3,516, which the firm attributed to a shift in the mix from lower premium default transactions to higher premium purchase transactions and an increase in the average revenue per order for purchase transactions.

“Market conditions in the real estate and mortgage industries continued to be a challenge in the seasonally weak first quarter. Elevated mortgage rates and low albeit growing inventory levels have caused transaction volumes to remain near historically low levels,” Ken DeGiorgio, First American’s CEO said on the firm’s call. “Although our financial results this quarter were a function of the tough mortgage origination market, we have recently started to see signs of a measured recovery.”

First American executives also addressed the title insurance proposals announced by the federal government, including the use of attorney opinion letters in place of title insurance and changes to who pays for a lender’s title policy and waivers for title insurance in certain transactions, such as refinances.

“This attention is the product of a broader effort, an effort at which all of us at First American wholeheartedly support to make the purchase of a home more affordable.

The focus on our industry as part of this effort reveals however that as an industry, we need to do a better job educating policymakers and other stakeholders about the critical role title insurance plays in protecting people’s investments in their homes which are the primary vehicle for wealth creation for a majority of Americans,” DeGiorgio said. “Moreover, title and settlement fees are among the smallest cost components over the life of a mortgage and as a result, are not a barrier to homeownership. The discussions in Washington are still in early stages, and we believe that ultimately, our industry will be successful in reaffirming the value of title insurance to policymakers.”

He added that he does not believe the proposal regarding changes to who pays for the lender’s title policy will get off the ground, citing the lack of transparency, noting that policymakers general prefer to ensure borrowers know what they are paying for.

“It will just be wrapped up into the interest rate or loan level price adjustments or what have you,” DeGiorgio said of the proposal. “So, I don’t think ultimately it will take off.”

Old Republic

Like First American, Old Republic posted overall upticks in its financial results, despite a weaker performance from its title segment. In the first quarter of the year, Old Republic recorded a total operating revenue of $1.8488 billion, up from $1.7324 billion a year ago. Additionally, the firm’s net income rose from $199.8 million in Q1 2023 to $316.7 million this year.

The firm’s title segment, however, recorded a net loss of 6.5% on title insurance premiums and fees earned, which came in at $545.4 billion, and a pretax income of $2.3 million, marking an 86.4% annual decline.

“While challenging market conditions and interest rate uncertainties persist as the second quarter begins, we believe the trends in our order counts, along with a modest uptick in our directly produced revenues or positive signals as we head into the seasonally more active market period,” Carolyn Monroe, the president of Old Republic’s title segment, said during the firm’s Q1 earnings call with investors Thursday.

Executives notes that strong growth in the company’s general insurance segment offset lower revenue and profits from its title insurance segment. Similarly, to company leaders at First American, executives at Old Republic also addressed the policies proposed by the federal government that could impact the title industry.

Craig Smiddy, the firm’s president and CEO, told investors and analysts that he does not see any of these proposed title policies materially impacting Old Republic’s business.

Monroe added: “No one wants to turn the GSEs into insurance companies, and that’s what happens if they don’t get title insurance. And it’s the same with any lender. Title Insurance is really about preventive, and we do all the work to make sure there isn’t a claim. And we just feel like that more education on this should help because this all goes back to affordability, and title insurance isn’t really what’s stopping the affordability right now in homes.”

Stewart

Stewart, the smallest of the big four firms, also reported its earnings last Thursday. Again, the firm recorded an overall improvement in its financial results for the quarter, with total revenue rising to $554.3 million from $524.3 million a year prior, and net income coming in at $3.1 million compared to a net loss of $8.2 million in Q1 2023. The company attributed the drop in title revenue to a decrease in residential order volumes.

Despite the revenue drop, Stewart’s title segment recorded a 1% year-over-year decrease in its operative revenue, which came in at $451.4 million. The title segment’s pretax net income, however, saw a massive annual jump in Q1 2024, rising 1633% to $10.2 million. This was aided in part by an uptick in the total number of orders opened during the quarter which rose from 73,861 a year ago to 79,335. Of all the orders opened, 3,693 were commercial, 48,024 were purchase and 16,371 were refinances, with the number of both commercial and purchase orders opened falling by less than 1,000 orders annually.

“As I noted previously, the housing market is bouncing on the bottom. From a macro perspective, this quarter was a continuation of what we had seen in the past several quarters. Mortgage rates remain elevated hovering just above below 7% during the quarter, which has prolonged the low transaction volumes,” Fred Eppinger, the CEO of Stewart, said during the firm’s Q1 2024 earnings call. “Our industry is facing combination of these factors, along with low sales inventory yields and overall weak housing market. Our previous calls, we shared our expectation that 2024 will be a transitional year for the industry with 2025, seeing more normal volumes of approximately 5 million units for existing home sales following activity this quarter, we now believe the transition has been slowed with much of the improvement pushed into 2025 and a more normal market returning in ’26.”

While executives did not address any of the federal government’s proposed title insurance policies, they did note that the firm is still cautious about acquisitions, and instead they are focused on growing Stewart’s network of metropolitan statistical areas.