The title insurance industry has been hit hard by the housingmarket slump, particularly in local markets, according to industryprofessionals and a rating service.

Fitch Ratings, in its report on the sector yesterday, said titleinsurers' operating results were continuing to deteriorate at theclose of the third quarter, showing no near-term relief from thecurrent market downturn.

Title insurance revenue, for the universe of six publicly-tradedfirms Fitch studies, for the first nine months of 2007 fell 9percent from the same period in 2006, but the rating firm said thedecline was more pronounced comparing third-quarter revenue from2007 to 2006.

Jim Maher, a consultant to the American Land Title Association,an industry trade group, said that 9 percent, "while it doesn'tsound like much, it's very significant." To see anythingcomparable, he added, one has to have to go back to the early1980s, "when interest rates were in double digits."

Currently, he said, "local markets are more numericallyextreme--down some 60 percent."

Rafael Castellanos, managing partner at Title Insurance Agencyin Manhattan, can attest to that. "We're seeing a huge downwardslowdown in the level of closings," which are off by 50 percentcompared to last year, which translates to a 50 percent cut inrevenues, he noted.

The big title insurers, he said, were not hurt, but independenttitle agents are.

Fitch said it is expecting a moderate 3-to-5 percentdeterioration in title insurance revenues for 2008. An improvementin results for the big traded firms, Fitch predicted, won't happenuntil the beginning of 2009.

Title insurance operating earnings for the first nine months of2007 fell by more than two-thirds to $295 million for the sixpublicly-traded title underwriters, representing a weak operatingmargin of 2.3 percent, Fitch reported.

Two underwriters actually reported pretax losses for its titleinsurance segments during the period, while a third was essentiallybreak-even, Fitch said.

The firm said operating margins have fallen precipitously in2007, but added that this level of earnings during a down-cycle isto be expected.

In fact, one only has to revisit 2000 to find a similar industryoperating margin of 2.4 percent. Fitch is expecting operatingmargins in a range between 2 percent and 4 percent during 2008.

Mr. Maher said that title firms need to maintain highly-trainedprofessionals, so they cannot do a cutback as a factory might, thus"management of that fixed cost is tricky."

However, he said that today's market is more adept at managingcycles in the $17 billion industry, and the workforce is moreaccepting of change, realizing that in such periods, "you have todo something else."

Mr. Castellanos commented that "we know this is cyclical--sixmonths if we're lucky. We plan for it, live modestly and save for arainy day."

"We are weathering the storm going forward and hoping thedownturn doesn't last," said Michael P. Miglino, president of theNew York State Land Title Association.

Mr. Miglino said the downturn has been magnified because therecent housing boom had meant some "very, very busy years."

Fitch said expense initiatives are expected to gain tractionduring 2008, resulting in a slight improvement in operatingmargins. For the foreseeable future, however, Fitch predictsmargins will not approach levels seen in the favorable market of2003-to-2005.

The rating firm said the fortunes of the title insuranceindustry remain tied to mortgage and real estate markets, both ofwhich will continue to deteriorate in 2008. The housing market,Fitch noted, has a greater than 10 month inventory glut.

Title underwriters have taken reserve charges during the year ascurrent estimates of losses for previous policy years are exceedingoriginally reported loss ratios. Average combined ratios for thesix publicly traded underwriters worsened by 350 basis points to101.8 as of Sept. 30, said Fitch.

Only one underwriter out of the six reported improvement inexpense ratios, and consequently, a better combined ratio relativeto 2006, according to Fitch.