Title earnings rise even as mortgage originations fell in 3Q
All four national title insurance underwriters saw an increase in third-quarter net earnings compared with one year prior even as new orders declined because mortgage origination volume fell this year.
Expectations of weaker order volume lead Keefe, Bruyette & Woods to cut its earnings per share estimates for both Fidelity National Financial and First American on Oct. 8. But both companies reported EPS equal to KBW's original projection.
Fidelity reported net earnings of $236 million, compared with $156 million one year earlier.
Fidelity's title revenue was flat at $1.9 billion, but its commercial revenue increased by 8% to $271 million. The third-quarter average fee per file was up 11% to $2,623.
Direct orders opened fell to 456,000 from 501,000 one year prior, but the purchase share increased to 69% from 62%; title companies get more revenue from purchase orders than refinancings.
"As we enter the seasonally slower fourth quarter, we will remain focused on our operating metrics and staffing levels in order to maximize our profitability," said Fidelity Chairman William Foley in a press release.
As for the acquisition of Stewart Information Services, "we are currently engaged in the second request related to the Federal Trade Commission's Hart-Scott-Rodino regulatory review of the transaction. We still anticipate a first or second quarter of 2019 closing for the transaction and continue to believe the Stewart acquisition will create meaningful long-term value for our shareholders," Foley said.
Stewart reported net income of $17.6 million, up from $10.9 million the prior year. Its third-quarter results included $6.8 million of expenses related to the Fidelity transaction and $3.4 million of net unrealized gains for changes to the fair value of its equity investments.
"Even though order counts were down year-over-year as interest rates rose through the quarter, the growing mix of purchase transactions in our residential business and larger transaction sizes in our commercial business helped keep title revenues flat with the third quarter 2017," said CEO Matthew Morris in its press release.
Stewart had 79,369 residential orders and 88,691 total orders opened during the quarter, compared with 86,834 residential and 102,684 total one year prior.
First American's net income increased to $151.5 million from $21.4 million in the third quarter of 2017. Total revenue increased a mere 1% to $1.5 billion.
"Our strong financial results continued this quarter, as we achieved a pretax margin of 14.6% in the title business," said CEO Dennis Gilmore in First American's press release. "Our commercial business had another good quarter, with revenue growth of 5%. We continue to benefit from increasing investment income driven by rising short-term interest rates, however higher mortgage rates have recently contributed to a slowdown in purchase activity."
First American had 249,100 title orders opened, down from 278,300 in last year's third quarter.
Old Republic, which offers other insurance lines and operates a run-off mortgage insurance business, had net income of $275.2 million, up from $46.1 million a year ago. The title insurance business had pretax operating income of $67.7 million, up 0.6% from the third quarter of 2017. It had 104,704 orders opened during the quarter, down from 105,661 a year prior.
The mortgage insurance business had pretax operating income of $13.2 million, compared with a loss of $3 million last year.
CoreLogic had net income of $22.5 million, down from $30.8 million a year ago. The year-over-year drop reflects a $13 million one-time transition tax for certain foreign earnings in connection with the Tax Cuts and Job Act, the company said.
"Year-to-date, despite a double-digit contraction in U.S. mortgage loan volumes, we grew overall profits, expanded margins and repurchased 2% of our outstanding shares," said President and CEO Frank Martell in a press release. "We achieved these positive results through aggressive cost management, growing our non-mortgage and international footprint, and leveraging benefits attributable to our market leadership in underwriting solutions."