FEB 6, 2014 3:56pm ET

Interthinx Deal to Replace What First American Gave Up in Spinoff

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First American Financial Corp.'s deal to buy Interthinx comes at a time of increased consolidation among mortgage industry vendors and would put the title insurer in direct competition with CoreLogic, the company it spun off in 2010.

The $155 million deal, announced Thursday, comes on the heels of rival title insurer Fidelity National Financial acquiring Lender Processing Services for $2.9 billion in January, as well as CoreLogic's purchase of Bank of America’s flood and tax processing operations last year and pending purchase of Marshall & Swift/Boeckh and DataQuick.

While those moves by First American’s rivals are significant, CoreLogic’s expansion — and First American's need to replace the analytics offerings it gave up in the spinoff — likely played a bigger role in the decision to buy Interthinx.

"They had all these things, but they spun it all off to CoreLogic," says Jordan Brown, CEO of financial services consultancy Marketwise Advisors.

The combination of First American and Interthinx would address demand from lenders and servicers to tighten the integration of loan origination, data quality processes and settlement services, First American CEO Dennis Gilmore says.

"First American provides assurance as to closing and funding quality through the settlement, and as to ownership and interest security quality through our title business,” Gilmore wrote in an email. “Now, we’re adding … services that help validate loan data quality through fraud detection, identity and income verification, collateral risk and valuation, and compliance checks."

First American will also look to incorporate its expansive inventory of property and title information and imagery with the analytical capabilities of Interthinx to create new products and services, Gilmore says.

After First American acquires Interthinx from Verisk Analytics on March 31, the title company will have many more products and services to match CoreLogic's and Fidelity's offerings.

The Interthinx business consists primarily of mortgage fraud analytics technology and tools that assist lenders with verification of income, compliance, quality control and loss mitigation. Interthinx's flagship FraudGUARD analytics platform competes directly with CoreLogic’s LoanSafe Fraud Manager, but Interthinx doesn't offer many of the title and property services that CoreLogic provides.

"Solely in the one category of pure fraud detection, Interthinx is the market leader," Brown says. "I think of CoreLogic [as being] much stronger in terms of valuations and collateral risk rather than the pure fraud detection models."

Driving much of the acquisition activity among mortgage services and technology providers is the desire to offer suites of bundled services that promote broader relationships with lenders and servicers that in turn increase revenue and prolong partnerships. In Interthinx, First American is gaining an established client base for its other products.

"It immediately provides a cross-sell capability between those clients, and it's a client base that has used Interthinx for a number of years and has tended to be quite loyal to it," Brown says. "You're not going and changing your fraud detection tools anytime soon, especially when it something that works quite well."

The opportunity is further bolstered by the numerous integrations of Interthinx technology into lenders' core systems, he adds.

"It's not just that FraudGUARD is a tool that is well accepted by investors and lenders, it's also over the years been very well integrated into virtually all of the major loan origination systems and document vendors; it's hooked into everybody," Brown says.

First American has gradually unraveled many of its ties to CoreLogic during the nearly four years since the spinoff.

First American had until June 2015 to sell off its stake in the company or pay additional taxes in the deal. A year after CoreLogic became a standalone public company, investor pressure to improve profitability led to First American’s offer to repurchase part or all of CoreLogic. The offer was later rescinded, and a management shakeup appeased CoreLogic's largest shareholders.

In July 2012, First American had sold enough CoreLogic stock to reduce its ownership below 5% and no longer publicly disclose its stake in the company. First American no longer owns any CoreLogic stock. However, the companies lease facilities at a shared campus in suburban Dallas-Fort Worth from the same landlord. In addition, CoreLogic leases data center and warehouse space in California from First American, but is in the process of migrating its two data centers to Dell Services.

For Verisk, the sale of Interthinx would provide an opportunity to refocus on its core competencies of risk analytics for the property and casualty insurance, healthcare and government sectors.

"[T]his transaction…will allow us to focus on businesses most closely aligned with our strategy [and] enhance Verisk's focus on proprietary data analytics in our key verticals," Scott Stephenson, CEO of Verisk Analytics says in a press release.

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