It's no secret that the number of residential refinance transactions is down sharply in 2013-- while mortgage interest rates are still historically very low, they've been low for so long that most everybody who was interested in refinancing has already done so. Plus, interest rates have crept up a bit. Home sales are up from last year, but not enough to pick up the slack from the refinance slump.
Fewer refinances equates to fewer orders of title insurance for refinances. Still, the refinance bust has not been a total disaster from the title insurers' perspective... refinance orders are the least lucrative orders for them, so with fewer of them, and with purchase orders and commercial orders generally holding up, a greater percentage of the companies' orders are more lucrative residential purchase transactions and commercial orders.
Other factors have further benefited the title insurers. Claims losses continue to moderate as the disastrous fallout from the housing bubble continue to diminish in the rear view mirror. And the companies' investments have continued to do well in a favorable market. Combine all these factors, and even during the refinance slump, the big four title underwriters have been posting robust profits.
The line-level employees of these companies do not appear to be participating so much in the good times, however-- or should I say former employees?
Fidelity National Financial's CEO, George Scanlon, proudly told investors of the 'good' news on the company's third quarter earnings conference call: the company was quickly and proactively cutting employees even as the company's title insurance business had another "strong" quarter:
The third quarter was another strong quarter for our title insurance business. The market has made a noticeable shift to a purchase-dominated market, as the level of refinance activity has come down dramatically. We generated a 14.2% adjusted pretax title margin, nearly equal to the 14.4% title margin in the third quarter of 2012, despite a 15% decline in closed orders. The combination of a 23% increase in the fee per file and nearly 1,650 staffing reductions since the middle of June helped offset the decline in order volume. As we enter the seasonally slower time of the year, we have made additional reductions of approximately 300 positions in the first 3 weeks of October.
First American made similar reductions in employees, according to its Q3 earnings press release:
In response to lower refinance activity during the third quarter, headcount was reduced by 715 employees, including temporary staffing.
Stewart, in sanitized corporate-speak, indicated in its third quarter earnings press release that it too was looking at trimming title workers from its payrolls:
"As newly opened title orders decline, we are actively managing employee costs in the title segment to counteract the expected revenue decline."
In the corporate world, loyalties generally run to shareholders, not so much to employees, who are seen as expenses to be eliminated whenever possible, even when a corporation is quite profitable. If these corporations felt they would need these workers in the near future, they would probably not lay them off, but they evidently do not see a pickup in orders coming in the near term.