A new report on title insurers by a financial services firm projects that 2009 will see a $1.8 trillion mortgage market--down 1.3 percent from last year.

New York-based Keefe, Bruyette & Woods said its estimate involves a cautious approach as to whether mortgage application levels actually translate into higher closed volumes given current underwriting standards and credit availability.

The firm's report said rate cuts and other actions from the Fed driving down mortgage rates have unleashed "a significant rise in applications," and government action creates the possibility "for the 2009 origination market to end up being better than previously envisioned."

The KBW analysts said they believe the title insurers have significantly reduced their overall expense bases, both from a personnel standpoint and with respect to other operating expenses, and now enter 2009 better equipped than in the past to manage lower origination volumes.

Increasing volumes as the year progresses, according to KBW, should help title insurers leverage their reduced cost bases even though the firm believes volumes will remain at the lower end of recent annual trends.

KBW said a potential wild card for title insurers in 2009 is title loss provisioning, noting that over the last two years, the industry has experienced elevated loss levels associated with the weakening economy, increasing foreclosures and elevated fraud levels.

The report said there is a concern over increasing commercial losses, which should be monitored for "accelerating deterioration given the higher severity of commercial losses."

KBW said it does not foresee much merger activity since the Chapter 11 sale of LandAmerica's underwriting capacity (Commonwealth Land Title and Lawyers Title) to Fidelity National.

According to the analysis, other players have an interest in consolidation at this time and with over 45 percent of the market following the LandAmerica deal, it is extremely unlikely that Fidelity National would or could pursue another transaction of any meaningful size.

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Title Insurance 2009 Business Will Be Down A Bit, Say Analysts

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