As the nation enters its second week in shutdown mode, industry analysts are taking to their soapboxes, sounding the horn on the potential aftershock that title insurers could face.
While the duration of the government shutdown is still unknown, the timeline will be a key variable in determining the impact on title insurance companies’ margins, according to Fitch Ratings.
"Title insurers are sensitive to macroeconomic factors such as employment levels, consumer sentiment and interest rates, and therefore the duration of the shutdown is a vital factor in determining its affect," explained Fitch Ratings directors Gerry Glombicki, Dafina Dunmore and Kellie Geressy-Nilsen.
They added, "The longer the government shutdown lasts, the bigger the potential profitability impact to title insurers."
While it’s clear that mortgage giants Fannie Mae and Freddie Mac will remain largely unaffected, the extent to which these enterprises rely on document verifications from other agencies — notably the Internal Revenue Service and the Department of Housing and Urban Development — could delay or even cancel title closings, Fitch pointed out.
It’s important to note that if the shutdown duration increases, government entities will not be adequately able to process demand for services, thereby decreasing mortgage originations and title orders.
However, as long as the shutdown is brief, the impact on title insurers will not be significant, stated American Land Title Association CEO Michelle Korsmo.
"The title insurance company is well-capitalized and we will be able to withstand any slowing in the economy," Korsmo said.
She added, "The title insurance industry will continue to meet the needs of its customers and provide protection to consumers, lenders and investors in the event of any claims."
Overall, it’s difficult to quantify how the shutdown will take place, but the biggest variables influencing title orders are increasing interest rates, tighter lending standards and low housing inventory in certain markets, Fitch noted.
"A long-term government shutdown will have an impact on all sectors of the economy," Korsmo said.
She concluded, "Any decrease in mortgage originations and increase in mortgage rates will hamper the real estate market as a whole, which in turn, will have an impact on the volume of title orders."