Title Industry Titans Feel the Pain of Housing, Mortgage Downturn
The mortgage mess hit the balance sheets of three large title insurance providers this week, showing that the real estate mess has yet to work its way through the system. Stewart Information Services Corporation (STC), LandAmerica Financial Group, Inc. (LFG) and The First American Corporation (FAF) all said this week that the market downturn pushed revenues and income lower during the first quarter -- with two of the title companies posting net losses for Q1. LandAm Sees Transaction Volume Dry Up At Richmond, Virginia-based LandAmerica, revenue fell by 27.6 percent to $686.4 million, leading the company to post a net loss of $24.2 million, or $1.60 per share, for the first quarter. The company cut 300 employees during the quarter, it said, meaning that LandAm has cut staffing by 25.4 percent since the start of 2007. "Our first quarter results reflect the persistently challenging economic conditions and the measures we have taken during the latter half of 2007 to significantly reduce operating costs," said CEO Theodore Chandler, Jr. "Tight mortgage lending conditions from reduced liquidity in the mortgage-backed securities market were factors in keeping transactional demand at bay." Severity on title claims also increased, LandAm said, leading the insurer to boost its claims provision to 9.7 percent of operating revenue, up from 8.6 percent one quarter earlier. Despite mounting losses in title operations, however, the company's lender services division -- which houses the LandAm's default outsourcing businesses -- posted pretax earnings of $10.1 million, with the company citing increased demand for its lien monitoring, BPO, appraisal, foreclosure and reconveyance services as a driving factor. Stewart Sees Revenues Drop Revenues at Houston-based Stewart fell 25.9 percent to $394.1 million, driving the title conglomerate to a net loss of $22.3 million, or $1.24 per share, for the first quarter. Like LandAm before it, Stewart cited "a decline in home sale and reduced financing activity" as the core driver behind the Q1 loss, and said it had laid off roughly 5.4 percent of its workforce during the first quarter. "The first quarter of 2008 has been a challenging environment for profitability given the current adverse economic conditions, as well as the traditional negative impact of the seasonality of real estate sales," said Stewart Morris, Jr., co-chief executive officer and president. Underscoring just how tough March was, the company said that 47,000 title orders were opened at Stewart during the month; that compares to 52,700 orders one month earlier, and 63,800 orders opened one year ago. First American sees title earnings drop 95 percent Unlike both LandAm and Stewart before it, First American on Thursday posted a small profit of $29.3 million in the first quarter; but that profit was off 57 percent compared to year-ago numbers. The Santa Ana, Calif.-based title and information giant said that revenue fell 22 percent, to $1.7 billion -- meaning that the bottom line took a much steeper dive than the top line. "The company continues to be impacted by the slowdown in real estate and mortgage activity," stated Parker S. Kennedy, chairman and CEO. First American is planning to separate its title and specialty insurance businesses from its information and analytic solutions, and a look at the operating results of each segment suggests why: the company's title business saw revenues fall 26 percent, as the number of title orders closed fell and margins in the title business were squeezed to the tune of 3 percent relative to year-ago levels. The result was a huge 95 percent drop in earnings to $2.9 million, First American said. The company's information services group, however, produced a pretax margin of 17.1 percent during the first quarter -- the businesses in this unit include the company's default family of companies, which the company said had seen an "increase in production volume." Disclosure: The author held no positions in STC, LFG, or FAF when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.