Mortgage and Title Insurers Suffer from Housing Woes

Continued housing market weakness and the uncertain long-term future of Fannie Mae (FNM) and Freddie Mac (FRE) is putting yet more pressure on the beleaguered mortgage and title insurance industries.

A new report from Standard & Poor’s graphically illustrates the declining fortunes of title insurers. Unlike most other insurers who receive regular premiums over the life of the policy, title insurers generally receive one payment and reserve against estimated future losses at that time. If those losses are higher than the title insurers anticipated, their profitability will erode, S& P says.

“Moreover, the overall decline in sales volume is making the problem worse. With fewer mortgage originations, there are simply fewer title searches to conduct). The insurer can mitigate some of this effect if it has some market share in commercial title insurance, but no rated title insurer derives more than a tenth of its revenues from this source. Of the four major rated title insurers, all carry negative outlooks. The strongest among them, Fidelity National Title Insurance Co., (FNF) has a financial strength rating of ‘A’, while we recently cut our rating on the weakest, LandAmerica Financial Group Inc., to ‘BBB+’ from ‘A-’.”

Mortgage insurers also face an uncertain future with the loans they insure for Fannie and Freddie, who count heavily on the mortgage insurers’ ability to satisfy claims on defaulted mortgages, S&P says.

If the GSEs’ ability to purchase loans in the future is reduced because of ongoing losses, not only would it crimp a given mortgage insurer’s revenue, but it would also reduce mortgage volume and home-buying activity.

Comments

[poncawolf:]

Why should anybody care? After all it's the freetraders at work here. - Thats what they wanted - do as they please - As they pleased.

So now we know - free-traders mean - Hang yourself with anything close to greed.

Should be a law against such greed.

Oh wait there was till the to tapping repubs took over.

Well - it's BIBLICAL - GOD just don't like golden calf builders.

So I guess all we need now is the hail and brimstone hitting them.

So don't look back or feel sorry for them - For we might all turn to salt ..........

2008 Sep 15 10:09 PM

[ritteja:]

dude - seek help

2008 Sep 16 08:28 AM

[Smalltownba...:]

Looks like we are headed back to the days when pontificating liberal blowhards like "poncawolf" will have to use 20% of their own money in order to purchase. Unfortunately all of those "less fortunates" they always want to help will have no options for purchasing a home. I am not crying for either.

MI companies and title insurers play a vital role in our economy and we must be concerned if they are unable to survive.

2008 Sep 16 08:32 AM

[specks:]

to tcornelison
The managers of these organizations were allowed free reign to yank in millions of dollars from the most vulnerable in our society. We do not need this kind of SERVICE in our market place.
Perhaps you are one of them, are you?

2008 Sep 16 03:10 PM

[Janice 33:]

The decline in title insurance underwriter profits is directly related to the losses sustained by the rules created by their own lobbying efforts. When all the mortgage money was flowing into the market in the late 90's early 2000's, the big title underwriters wanted to pass laws to allow legalized kickbacks and oligopolization of the market in the form of AfBAs and Controlled Business Arrangements because this allowed them to capture more of the market and increase their bottom line. It was a very short-sighted policy. They had powerful lobby groups aligned in the form of the NAR, Mortgage Bankers Association and the Land Title Associations. Unfortunately, their eye was on the wrong ball. They were looking at their bottom line profits, instead of looking into the magnifying glass at the havoc that was ensuing in the market. Title Agents and Underwriters have always been the stop-gap or the watchdog of the industry. They typically make the least amount of profit from a real estate transaction, but retain the most risk if liens arise or if fraud is present in the transaction. After all, the title insurer and the settlement agent are "insuring the transaction" (subject to certain delineated exceptions found on the policy, of course). When RESPA was passed with the nod of approval from the national title underwriters, big lenders, large brokers and national realtor lobby associations, the legislature authorized banks, realtors, builders and mortgage brokers to own the title agencies and settlement companies. In essence, the brokers, realtors and lenders controlled the real estate closing from start to finish. Lenders, Brokers and Realtors make alot of money upfront on these deals. With no gatekeeper in the form of an independant closing or title insurance agent, these companies took the risk of fraudulent or sketchy deals in return for big upfront fees on these transactions. Most title insurance claims arise during foreclosure. The national underwriters, who pushed for these AfBA's, wanted the underwriting dollars they could make from these AfBAs. The market tanked, investors withdrew money from these types of morgage-backed securities, and the losses are pouring in.

But the large underwriters, NAR and lobby groups like RESPRO continue to push the same course, seemingly unaware of the devastation all around them. These groups continue to lobby state enforcement agencies (ie State Departments of Insurance) to allow these AfBAs or CBAs to continue to exist.

The industry players are out of touch with reality. The only way to set the real estate industry back on course is to get back to basics. Put the independent title agent back in every real estate transaction. Independent agents have a cross-section of clients, and are not "captive" to any one lender, broker or realtor for business. They can make independent professional judgment calls about whether to close or insure a transaction. Unlike affiliated title businesses, independent title agents don't face the threat of imminent extinction if they don't close the fraudulent deals for a particular lender. They have more power and autonomy to say "no" and stop the current failure of fiduciary responsibilties to the consumers in the market.

Don't get me wrong, there are many players in the real estate market who contributed to the state of affairs today. This includes the consumers themselves who took on loans they couldn't afford, who financed houses and cars and vacations that they couldn't afford, and who were living a lifestyle on someone else's dime. But they had help from big industry players. We are all in the same bus being driven by National Underwriters, NAR, NAMB and other big industry players who value their own bottom line above the good of the economy as a whole. Can we stop the bus at the next location, please? I want off.

2008 Sep 17 10:17 AM