The title insurance industry has implemented beneficial cost restructuring that includes staff reductions and paring of other expenses to adjust to a lower revenue base and stabilize operating margins. In addition, moderate improvement in title insurers' capital position has better equipped insurers to withstand future market volatility.
Favorable mortgage rates combined with possible revisions to the federal Home Affordable Refinance Program (HARP) could inspire a new round of refinancing that might buoy title insurance order flow. Fitch feels that while an expansion of HARP would be favorable, at best it would result in 2012 mortgage origination levels equal to those of 2011, estimated to be $1.2 trillion by the Mortgage Bankers Association. Despite mortgage interest rates that are widely expected to remain at or near historically low levels, weak economic conditions characterized by high unemployment and declining home values, and receding mortgage and real estate market activity some program revisions could be a positive for the industry.
Although Fitch does not anticipate a Rating Outlook revision to Positive from Stable near term, notable top-line growth spurring consistent double-digit returns along with a return in industry capitalization to historical levels could prompt a review.
Conversely, a slip back to a Negative Rating Outlook could occur should the industry suffer severe capital deterioration akin to 2008, experience significant reserve strengthening, and undergo an excessive decline in originations amounting to heavy operating losses.
The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com . All opinions expressed are those of Fitch Ratings.