Analysts at Keefe, Bruyette & Woods feel the problems involving foreclosure documentation will not have an impact on title insurers, they said in a third quarter earnings preview report.
"In the event the foreclosure in question did not produce a subsequent resale into the market, we see no exposure for the industry. In the event that the property was resold into the market through a legitimate real estate transaction, we believe the new owner (and title policy) would be protected by the fact that all parties entered the transaction in good faith. We would also point out that the issue, in our opinion, is one where the servicer is responsible for any financial settlement and, therefore, the foreclosed upon party would deal directly with the servicer and not deal with the new owner," said Nathaniel Otis and William Clark.
Meanwhile what will affect third quarter results is that typical seasonality for the business is being trumped by low interest rates, driving refinancing-related business.
Normally in the third quarter, there is a seasonal slowdown in title orders opened.
The two commented, "Although order volumes will benefit from the increased refinancing activity, premiums-per-closed order will come down given the lower percentage of purchase market transactions."
The only title company Otis and Woods adjusted their EPS estimates on was Fidelity National Financial, which they increased by $0.03 per share to $0.32. This is based on higher order counts partially offset by a lower fee-per-file.
In a separate report, the KBW analysts say they are positive on the mortgage insurance sector going into the third quarter results announcements and beyond, as delinquency trends remain favorable and market share traction could provide positive momentum for the industry.
Even so, Otis and Clark cut their earnings per share estimates on three of the four MIs that they follow. Only MGIC was immune.
Old Republic was cut by $0.02 (although it is the only MI the analysts believe will be profitable for the period), PMI was cut by $0.28 and Radian was cut by $0.09.
