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T3 Summit: The Swanepoel T3 Summit is a high-level think tank for leaders, senior exec’s and rainmakers in the real estate industry. For more details visit: t3summit.com Copyright: © 2012 by RealSure, Inc. and Stefan Swanepoel. All rights reserved. For more information visit swanepoel.com trend one1 ɄȽɕɄȵȨȇǸɜȨɄȽField of Dreams Swanepoel TRENDS Report 2011 Overview Title Industry of 2010 has helped but along the way there were a number of major changes Over the years consolidation in The pins began to fall for the that took place that will impact title the real estate industry in the form title industry in 2008 when revenues companies for many years to come. of mergers and acquisitions (M&A) dropped drastically, resulting in net Here are the main ones. has primarily been generated by losses across the board for the major companies flush with cash or those title companies, estimated at $670 Regulating the Market with superior management talent. million. It was the single worst year The primary driver has usually been to ever recorded for the title industry, On the policy and regulatory gain market share through expanded which included the bankruptcy of front there were a number of key pieces relationships or agent count. Today, Land America Financial Group. There of legislation passed in 2010 including however, there is another strong the Health Care Reform Act and the driver in the mix — survival. BY THE NUMBERS Financial Regulatory and Reform HOW MUCH Act (included the establishment of Assimilating relationships is critical the Financial Protection Agency). to the success of any M&A program, DOES IT COST? While the title industry does not fall especially in real estate, which is first –––––––––––––––––––– directly under these new regulations and foremost a “people business.” For it nevertheless is experiencing much Realtors® that has always remained greater federal oversight than before the most important factor; irrespective $670 as a result of their passage. of the reason for the M&A. million estimated net loss for An example of the impact the current The state of the economy has impacted major title companies in 2008. real estate market is having on title –––––––––––––––––––– almost everyone involved in real estate companies was the announcement from the federal government to the by Bank of America in October 2010 consumers, the agents and ultimately that it had suspended foreclosures due the brokers. Fewer sales, shrinking $1.0 to potentially flawed documentation. margins and high overheads have left billion As a result, Old Republic notified drop in title orders in 2009. numerous companies with limited BofA, Chase and Ally Financial’s options. Many long-time Realtors® GMAC Mortgage that it would no have been forced to seek other sources longer write new policies for those of income while a number of long- lenders. was some improvement in premiums time successful brokerage companies written in 2009 ($8.8 billion) find themselves up against the wall. In November 2010 Stewart Title even though title orders dropped However, in all business cycles, even increased its underwriting guidelines below 2008 levels ($9.7 billion) as ones in which the overall market size making it difficult to write policies companies slashed operating costs. shrinks, there are opportunities for on properties foreclosed upon by the One of the major fallouts has been smart, well-positioned companies. same lenders, and Fidelity National the failure of some title companies stated that it would require warranties to create adequate reserves during In this Trend we delve into from all lenders beginning November the good times. That under-reserving consolidation on all levels as we 1st to limit its liability in any “robo- is now causing financial problems in explore the title industry, mortgage signing” disputes. Fidelity wanted dealing with the high number of post industry, brokerage industry and even them in place before it would issue meltdown claims. associations. any title policies on REO properties but later dropped the requirement as The surge in refinancing during the a result of no other title companies latter half of 2009 through the middle ©2010 RealSure, Inc. www.RETrends.com 117 Trend 1 Consolidation: Field of Dreams following suit making it a competitive Last Men Standing remaining smaller companies. Two issue. But rest assured we have not interesting exceptions would be if one heard the last of this one. Ten years ago there were roughly of them were to be acquired by one five times as many title insurance of the other three or by The New Another area of change for title underwriters as today. At the Millennium Title, recently founded companies is their withdrawal from present time the industry has been by Pat Ston,; former CEO of Fidelity Affiliated Joint Ventures. As the consolidated down to only four major and Director of First American. Either interpretation of the constantly national companies that share 70% to could result in a major shift in market changing rules is becoming more 80% of the market: share. It's certainly something to keep difficult, and with the increased risk your eye on. • Fidelity (fnf.com) for the title company on significantly reduced margins, the risk/reward no • First American (firstam.com) Added regulations and compliance longer balances out. First American issues are also impacting the way a • Old Republic (oldrepublictitle. has backed away from the majority of normal title sales team operates. No com) its Affiliated Joint Ventures and, while longer do title companies have the others are still engaged, the number • Stewart (stewart.com) ability to co-market with Realtors®, of relationships has dramatically offering “perks” to the brokerage In addition to these companies declined over the past five years. community. As the pendulum there are an estimated 30 smaller continues to swing in the direction national and regional providers that It is not surprising then that as a of increased regulation it has become share the remaining 20% to 30% result of more stringent regulation, a a game of continual “catch-up” of the market. It is anticipated that changing market and a bad economy with all title companies establishing these four companies will maintain the title industry has experienced compliance departments. dominance in the title industry significant consolidation, bringing it as they continue to roll up any down to only a few major players. HUD (hud.gov) also recently ruled that Did You Know Number of Commercial Banks June 30, 2010 8,500 8,178 7,967 8,000 7,831 7,967 7,549 7,479 7,500 7,350 7,203 6,995 7,000 6,676 6,500 Source: FDIC 118 www.RETrends.com ©2010 RealSure, Inc. Swanepoel TRENDS Report 2011 “home warranty” is now considered a is not making the transition an easy American is already seeing an settlement service and therefore falls one. In large part the brokerage increasing number of title orders under the same regulations as title community still wants to do “business coming directly from the lender; insurance; precluding the paying especially with refis.” In the of a referral fee. Title companies future this is going to force have conversely argued that We bubbled up to about 1.4 million members both title companies and home warranty is “not” always ´(in 2006). We don’t need 1.4 million. We need real estate brokerages to a part of the transaction as its probably 750,000 agents. revisit their strategies and purchase is optional. This change RON PELTIER streamline the process with is potentially a large concern for Chairman and CEO,µ HomeServices of America new business models that companies like First American employ mobile technology that own a home warranty and the Internet to make company. as usual,” which places the title the process faster, more efficient and company between the proverbial rock customer-centric. The overall result of this increased and the hard place; putting the Title regulatory environment has been Rep on the front line in jeopardy Mortgage Companies and Banks to move the title business into of losing his/her certification for more of a commodity with highly violating these regulations.