Title insurers see business decline by 24% annually

Persistent housing market challenges of 2023 took a bite out of title insurance revenue, with premium volume falling amid higher mortgage rates, the American Land Title Association reported.

Title insurers wrote $4.1 billion worth of premiums in the third quarter 2023, a 24% decline from a year earlier, when they generated $5.1 billion. ALTA leaders attributed the ongoing "cyclical downturn," which has continued for approximately two years, behind the decreased business. 

Compared to the third quarter of 2021 when premium volume totaled $6.8 billion and rates sat in the 3% range, the most recent data showed activity down by 39.7%.

"Results of the latest quarter reflect headwinds from continued higher interest rates and limited housing supply that have resulted in a significant drop in home sales and mortgage refinances the past several quarters," said Diane Tomb, the trade group's CEO, in a press release. 

The latest data, though, represents an upward bump of 4.9% from the $3.91 billion generated three months earlier. But through the end of September 2023, year-to-date volume of $11.4 billion was still 35.1% below the level of $17.6 billion 12 months prior.

ALTA's report would not have shown any of the potential impact from separate cybersecurity incidents that hit two of the largest providers, Fidelity National and First American, and their subsidiaries in the fourth quarter. 

The steep annual falloffs illustrate the extent of the impact a steady rise in mortgage rates has had on the home lending industry over the past several months. During the third quarter, the 30-year average crossed and stayed above 7% for a good part of the three-month period, according to Freddie Mac's Primary Mortgage Market Survey 

The lock-in effect, whereby homeowners opted to stay in their homes to keep their lower interest rates, meant a dearth of new listings coming to market in 2023, although signs of increased inventory have appeared in recent weeks. Heightened affordability issues associated with the limited inventory and elevated rates kept many aspiring home buyers on the sidelines.

The resulting lower title insurance volumes corresponded to depressed lending throughout much of last year. The Mortgage Bankers Association reported purchase origination volumes still coming in lower by 6.8% on a year-over-year basis in its latest weekly lenders survey. Meanwhile, overall applications were down 2.1%, but a noticeable surge in activity has taken place since mortgage rates started descending in the fourth quarter.

At the same time, the title insurance industry faces pressure from advocates of alternative products, such as attorney opinion letters, to help offset high costs associated with home buying. Although a proposed Fannie Mae pilot to waive title costs in selected instances failed to materialize last summer, the government-sponsored enterprise continues exploring the potential effectiveness of alternatives. In mid December, Fannie Mae said it would permit greater use of attorney-opinion letters for specific property types and conditions in an update to its selling guide, a move ALTA criticized.

Title industry leaders have also not shied away in criticizing the development of the alternatives. In an online panel held on Dec. 6, Fidelity National CEO Mike Nolan put forward his view that attorney-opinion letters had never really been able to gain traction in the marketplace. 

"I think there's probably reasons for that. I just really view it as a lesser product. And I've not seen anybody put forth any information to me that shows it's less expensive," Nolan said in the discussion hosted by Keefe, Bruyette & Woods.

In its other third-quarter numbers, ALTA determined net income for the title insurance industry at $306.5 million, declining 21.2% compared to $388.8 million one year earlier.

In the first nine months of last year, insurers also paid $485.2 million in claims, up 10.6% from $438.7 million issued in the third quarter of 2022.

Texas led all states with the largest amount of title insurance volume generated during the third quarter at $613.9 million. Florida came in second place at $522.3 million, followed by California at $334 million.