Stewart and First American grapple with drops in title orders

By Housing News

“Big Four” title insurers Stewart Information Services Corporation and First American Financial have maintained that they prepared diligently for a rising interest rate environment. Based on second quarter 2022 earnings, it appears – at least for now – their preparedness is paying off.

Stewart recorded a total revenue for the quarter of $844.1 million, up from the $818.8 million generated in Q2 2021. However, due to increased employee and operating expenses due to the firm’s rapid expansion in late 2021 and early 2022, its net income came in at $61.7 million, down from $94.8 million a year prior.  

“Much of the work here at Stewart of the last two years has focused on restructuring, refocusing and rebuilding the company’s operations to better position ourselves to be a more successful and resilient company,” CEO Fred Eppinger told investors during a call Thursday morning. “The goal is to create a sustainable business that performs through all types of real estate cycles and economic conditions.”

Eppinger said the firm plans to continue investing in technology and other tools to improve the customer experience.

Unlike Stewart, First American saw a dip in its total revenue for the second quarter, which came in a $2.1 billion, down 9% from the same quarter last year. The firm’s net income also dropped to $109 million from $302 million a year ago, as title order volumes decrease due to rising mortgage rates.

While company executives predicted revenue to be flat for the year compared to 2021 in the first quarter, they are now predicting that revenue will see a low single digit year over year percentage decrease.

“Things are deteriorating a little bit just based off of where purchase orders are,” Mark Seaton, First American’s chief financial officer, told investors during the firms second quarter earnings call Thursday morning. “We are not seeing anywhere near the decline that you are probably seeing in the headlines or in terms of mortgage origination.”

Despite a significant decrease in purchase and refinance title orders, the title segments of both firms reported strong results.

At Stewart, the title segment generated a total revenue of $761.1 million up 2% year over year, however, its pre-tax income came in at $93.6 million, a 26% decrease from a year ago. The firm cited a 28% annual decrease in the number of open and closed title orders due to the “elevated interest rate environment,” for the drop in title income.

Although the segment as a whole recorded a decrease, the firm’s commercial sector saw an increase in revenue for both domestic and international title orders, with domestic commercial revenue rising 25% compared to a year ago to $67.1 million. Domestic non-commercial title revenue, on the other hand was down 5% year over year to $234.4 million.

First American also saw a year-over-year increase its commercial title revenue, which rose to $289.0 million from $223 million a year prior, due to the number of commercial title orders it closed recording a 9% annual increase for the quarter to 22,000. As a whole, however, the firm’s title sector did not fare as well as last year, with revenue dipping slightly to $2.053 billion from $2.064 billion in Q2 2021, as the overall number of closed title orders dropped to 205,000 from 271,100.

Looking ahead, like Stewart, First American remains positive that the firm will maintain profitability throughout the rest of the year, but DeGiorgio did note that First American is focused on expense management. Through July, the firm has cut roughly 600 positions and paid roughly $11 million in severance. Due to the firm’s acquisition of Mother Lode Holding earlier this year, however, its overall employee count has increased.

Executives also told investors that the firm plans to test a pilot version of its instant title decision product for purchase transactions by the end of the year. First American hopes this product will decrease friction and speed up the homebuying process, improving the overall experience for customers.


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