Title Insurers Think TRID Will Hurt Business in 4Q

A pair of title insurers expect to suffer from TRID implementation hangover in the fourth quarter as the slowdown in mortgage applications related to implementation will affect them as well.

"As we look forward to the fourth quarter, we are mindful of the potential impact on closings from implementation of the new integrated disclosure requirements known as Know Before You Owe. Given the significance of the changes all along the mortgage origination-to-closing cycle, we believe there will likely be some disruptions in closings, which could result in revenue generation shifting to later in the quarter and perhaps into first quarter 2016," said Matthew W. Morris, the Houston-based company's CEO, in its third quarter earnings press release.

"While loan applications were down more than 27% in the first full week in October under the requirements, we've only experienced a modest decline in opened orders per workday as compared to September, but it is too early to discern a trend. During the fourth quarter, we will have a full quarter's benefit of the cost management program announced in 2014 to help offset any potential revenue delay."

Dennis Gilmore, Morris' counterpart at Santa Ana, Calif.-headquartered First American Financial, said in that company's third quarter earnings press release, "While it is still too early to evaluate the ultimate impact, we continue to expect temporary delays in closings as the industry adapts to the changes required. Despite these anticipated delays, we are optimistic that the market environment will continue to be favorable in 2016."

TRID has had a direct effect on Stewart's third quarter earnings, as the company said it had $5.7 million of aggregate costs tied to preparations for the Oct. 3 implementation as well as its cost management program.

The company said it took a $35.9 million charge to earnings in its mortgage services segment because of goodwill and other intangible impairments. As a result, the company reported a net loss of $13.5 million.

The mortgage services unit includes the delinquent loan business that Stewart said it was exiting in its second quarter conference call. But the wind down had little impact on third quarter results as just $600,000 of the $5 million to $7 million total charge to incurred was part of the third quarter results. The rest of the charge is expected to be recording in the fourth quarter and first quarter of 2016.

Title revenues however, increased 14.3% to $503.5 million when compared with the third quarter of 2014.

Earlier this month, Stewart reorganized into two brands, Stewart Title and Stewart; the latter includes Stewart Lender Services and Stewart Insurance and Risk Management.

First American's title insurance business had a nearly 10% year-over-year increase in revenue in the third quarter to $1.3 billion, with income before taxes of $137 million, up 13% from the prior year.

Net income at First American was $75.5 million, down from the third quarter 2014's $80.7 million as the wildfires in California reduced earnings in its specialty insurance segment.

Old Republic International Corp.'s title insurance segment had pretax income of $55 million in the third quarter, a 95% increase over the same period in 2014.

At the same time, its private mortgage insurance business, which is no longer writing new policies, lost $300,000 on a pretax basis in the quarter, compared with pretax earnings of $22.6 billion in the third quarter of 2014.

Old Republic, which also has a general insurance business, earned $125.9 million in the quarter, up from $85.8 million one year prior.

The fourth national title underwriter, Fidelity National Financial, will report third quarter earnings on Oct. 27.