Title

Stewart and First American grapple with drops in title orders

Both said they've prepared for rising rate environment

During their first quarter 2022 earnings calls with investors, “Big Four” title insurers, Stewart Information Services Corporation and First American Financial, both stressed how prepared they were to take on a rising interest rate environment.

Based on second quarter 2022 earnings, it appears, that at least for now, their preparedness is paying off. While neither firm posted income numbers as high as they did during the second quarter of 2021, they both showed strong results.

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,” 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 9% year over year dip in its total revenue for the second quarter, which came in a $2.1 billion. The firm’s net income also had a significant decrease falling to $109 million from $302 million a year ago, as title order volumes decrease due to rising mortgage rates.


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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 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 the firm is focused on expense management and informed investors that as of July, the firm had 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.

“Given the decline in residential real estate activity and uncertainty in the economic outlook, we are maintaining our focus on expense management, particularly in business units most impacted by the decline in residential transactions,” DeGiorgio said.

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.

With both firms noting a decrease in commercial title order volumes at the start of the third quarter, as rising interest rates start to catch up with the sector, the firms are looking to rely on their experience, longevity, and technological innovations to maintain their performances throughout the rest of the year.

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