KBW Says Title Insurers Will See Mortgage Volume Drop 24%

NU Online News Service, Dec. 16, 3:40 p.m. EST

The title insurance market next year will see a decline in volume, but prices should increase, said Keefe Bruyette & Woods consulting firm.

In a report the company said that given ongoing economic challenges, it believes mortgage originations will fall to $1.6 trillion in 2010, a drop of approximately 24 percent from 2009 (the latest Mortgage Bankers Association projection is $1.965 trillion) as refinance volumes slow and purchase transactions show only modest improvement.

The firm said it thinks order volumes for the title insurance industry will be down in the mid-to-high teens range. However, it also believes the industry will benefit from an improved pricing environment, better agent splits and continued expense management efforts, providing some offset to the slowing volumes.

KBW's report finds next year's refinancing mix will also decrease, from a level of 63 percent in 2009 (MBA estimate) to 45 percent in 2010.

Helping to offset projected volume declines, KBW said, will be a higher fee-per-file, as the industry likely will benefit from 2009 pricing increases as well as the aforementioned lower refinance mix.

In addition, the industry continues to work toward reducing the agent retention ratio, either through regulatory means or by requiring minimum retention levels for their current and future agents, reported KBW.

Operationally, the title insurers are also in a better position to deal with the reduced volumes given their ongoing expense rationalization efforts, the firm found.

Given its new 2010 origination expectations, KBW said it is revising its 2010 earnings per share estimates downward to take into account lower order levels partially offset by the improved fee-per-file.

After factoring these changes in to its price targets, KBW said, "We remain comfortable in maintaining our Outperform ratings on the larger title insurers (FNF and FAF) given the value we believe they present at their current share prices."

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