DSNews delivers stories, ideas, links, companies, people, events, and videos impacting the mortgage default servicing industry.
Issue link: http://digital.dsnews.com/i/104642
HOUSING RECOVERY BENEFITS TITLE INSURANCE INDUSTRY: FITCH With revenue up and the housing market showing a sustained recovery, Fitch Ratings says the outlook for the U.S. title insurance industry is "stable." According to the ratings agency, its stable rating outlook is based on its belief that "ratings actions for the industry will on balance approximate current levels over the next 12-18 months as financial performance has improved recently." The agency points to improved revenue and reduced expenses as signs of stability. Operating profit margins for Fitch's title universe rose to 10.3 percent in the first nine months of 2012, a dramatic jump from 6.1 percent during the same period in 2011. Earnings improved for all underwriters, but the real stars were First American Financial and Fidelity National Title, which both posted pretax earnings in the hundreds of millions of dollars. In addition, title revenues increased by more than 15 percent from January to September as refinancing activity outpaced expectations and housing markets found solid ground. The period's underwriting combined ratio reached 90.7 percent, a level not seen since 2006. "The title insurance industry is benefitting from an improving housing market that is showing less home inventory and increasing home prices nationally," Fitch said in its report. While mortgage originations are expected to fall off somewhat in 2013, Fitch notes that the drop will mostly be driven by a decline in refinance activity, which will be offset by growing purchase originations. As the agency points out, "purchase orders typically bring in twice the revenue of refinance orders for title insurers." Additionally, open order counts for title underwriters were 20 percent higher at thirdquarter 2012 compared with the same period in 2011. According to Fitch, the order flow should provide a "strong pipeline of activity for the first half of 2013 and a cushion against a potentially weaker second half in an uncertain economic environment." As a result, revenue is expected to grow in 2013, though at a more modest rate than in 2012. While capital strength varies from company to company, Fitch says it continues to view the title industry as "adequately capitalized." The biggest threat to the industry at this point, Fitch says, is Washington's potential failure in avoiding the fiscal cliff. If that were to occur, economic growth would fall off drastically, leading to sustained mortgage and real estate market activity declines and a "return to sizeable title insurer operating losses and capital deterioration." On the other hand, if the cliff can be avoided and the housing market is allowed to grow further, Fitch anticipates an improvement in industry capitalization to historical levels. Start your day with a professional pick-me-up. VERBOSITY "Lower-income and minority communities are often disproportionately affected by problems in the national economy, and the effects of the housing bust have followed that unfortunate pattern . . . . [A]s a result of the crisis, most or all of the hard-won gains in homeownership made by low-income and minority communities in the past 15 years or so have been reversed." —Federal Reserve Chairman Ben Bernanke at the Operation HOPE Global Financial Dignity Summit in Atlanta on November 16, 2012 34 Start your day with the most current and critical news on the mortgage default servicing industry from DSNews.com. Sign up for our e-mail newsletter and get the top stories delivered direct to your inbox every day. Register to receive your Daily Dose at DSNews.com