With control of just 1.5% of the title insurance market, Williston Financial Group is far from a household name. It is, perhaps, best described in the industry as David to Fidelity’s Goliath.
But with an executive team that includes former Fidelity leaders, the small and independent Williston is already making an impact as it executes on its plan to become a major, national provider of title insurance.
The title insurance market remains dominated by a handful of very large players: the Fidelity, First American, Old Republic and Stewart families of companies, which control 87% of the market, according to American Land Title Association, a national trade association for the abstract, title insurance agent and title underwriter industry. Independent underwriters — more than 30 of them — control the remaining 13% of the market, with most controlling only a tiny percentage.
Still, Williston CEO Patrick Stone isn’t deterred. He believes his rapidly growing title insurance firm will continue to grab market share in the coming years.
Stone spent nearly 15 years at Fidelity National Financial Corp. rising to the level of president, chief operating officer and director before retiring in 2004. Retirement was a mistake, he says now, reflecting on that time.
“If I’m not busy I go crazy. I was an abject failure at retirement. My wife finally convinced me to do something,” Stone says. During his roughly six-year hiatus from the day-to-day business world, Stone became a shareholder in Metrocities Mortgage, now known as Prospect Mortgage. He also spent slightly more than a year on the board of First American Financial Corp.
He resigned from the First American board in 2009 and launched Williston on Jan. 1, 2010.
Williston Financial Group is the parent company of WFG National Title Insurance Co., which is licensed in 40 states, and Southern California-based WFG Title Insurance, which is domiciled and licensed only in California. It also owns WFG Lender Services Group, which has operating entities in Oregon and Washington; and TitleNet, a platform for sending/receiving orders over an electronic provider network.
OPPORTUNITY AMID DESPAIR
Some might question Stone’s timing for the launch. Housing, hit hard with the 2007 subprime crisis and the 2008 financial crisis, was still reeling. RealtyTrac recorded nearly 4 million foreclosure filings at the end of 2009, a record high, and predicted 2010 would be another tough year. Single-family housing starts plummeted in 2009 to just 445,100 units, down from a high of 1.72 million units at the height of the market in 2005. Prices and sales of existing homes were suffering as the market entered 2010, and no one knew then how low they would go or how long it would take for a housing recovery to take hold.
But Stone saw opportunity in the midst of all the despair. And with 40 years of experience in the title insurance and real estate business, his knowledge of the industry isn’t easily challenged.
“There is one prevailing truth to being successful and that is buy low, sell high,” he says. “It struck me as a wonderful time to start a company because it was an absolute bottom of the market.”
Companies draw into themselves to survive troubled times, Stone says. It’s a weakness he saw in the mortgage finance market that he felt could give him an edge.
“One thing that happens at the bottom of the market is that most existing competitors in an industry become very self-centered, become internally focused on cost controls and reducing expenses,” Stone says. “Consequently, client contact and client satisfaction is typically at an all-time low at the bottom of a cycle. Everybody loves the client when things are great, and everybody focuses on themselves when things are bad.”
It made sense to start Lake Oswego, Ore.-based Williston in a down cycle as the company “is totally about the client,” he says, and would be able to differentiate itself from the pack as competitors looked inward.
Joe McCabe, Williston’s general counsel, says the insurance underwriter genuinely wants to connect with its customers, collaborate with them and help them integrate services and run strong businesses.
“The company’s slogan is Communicate, collaborate, co-exist. The three C’s. It’s not just a tag line. It’s a way of life,” he says.
McCabe first met Stone at Fidelity National Financial where McCabe worked during most of the 1990s as vice president and associate counsel. He left in 1996.
The two men would reconnect again in the next decade when Williston formed via the acquisition of two insurance underwriters in runoff mode owned by TransUnion. McCabe, at TransUnion at the time, said the credit reporting agency sold its real estate operation to MacDonald, Dettwiler and Associates but MDA didn’t want to buy TransUnion’s title insurance underwriting businesses. McCabe, who was managing the underwriters, was tasked with the job of finding a buyer.
One of the calls he made was to Pat Stone. And as he recounts it now, “It all worked out.”
As Stone tells it, the TransUnion operations had been curtailed but were legally compliant and adequately capitalized. He said Williston and TransUnion were able to work a deal that was good for both parties.
“The nice thing: These underwriters were not very active from 2006-2008 when most bad policies were written so there’s not a lot of tail to worry about,” Stone says.
Conversely, when someone buys a company that’s operating at a bad time at a high volume, such as Countrywide Financial was when Bank of America bought it, it can be much harder to quantify the risk. (Bank of America has learned that the hard way.)
After the initial TransUnion acquisitions to launch Williston, WFG formed a de novo title/escrow business in Portland, Ore., later that same year, operating under the name WFG National Title Insurance Co. WFG now has five offices in that state. In mid 2012, it opened WFG Title Insurance, also a de novo operation, in San Francisco.
In early 2010, it also acquired a lender services firm, New Millennium, which was operating in 30 states when Williston bought it. The Westlake, Calif.-based company, whose name was changed to WFG Lender Services, has since expanded with a broader national footprint. Its operation includes a major production center in Plano, Texas, not far from HousingWire offices.
Williston also bought Seattle-based Northpoint Escrow in July 2011 and renamed it WFG Title and in November 2012 — it’s most recent acquisition — it bought Southern California’s ITC in Glendale and Santa Ana.
As of January, Williston had 752 independent title agents writing its policy. It is generating revenue in 36 states and is licensed in 41. Its model is direct-owned companies on the West Coast and relationships with independent title companies east of the Mississippi that write its policies.
It also has a significant amount of agents in Texas who write its policies — it’s a state where Williston would like continue to expand, Stone notes.
The companies Williston purchased controlled just 0.2% of the market, but Williston finished 2012 controlling 1.5% of the title insurance underwriting market.
“We are still small by national standards,” Stone admits, but adds, “We are essentially doubling annually. The goal would be to continue to do that.”
On a revenue basis, Williston had 0.8% of the market in 2011 and has 1.5% now.
“We’ve increased the business 17-fold since we started in terms of revenue. We’ve had significant growth. We are still small by national standards,” Stone says, “but we are the eighth largest of 34 underwriters.”
Michelle Korsmo, CEO at American Land Title Association, said the current big players in the market such as Fidelity and First American began buying up smaller players in the 1990s. Acquisitions have been a part of the title underwriting industry for many years, she said. A key challenge for many in growing their companies is the need for capital as title insurers are monolines, meaning they aren’t allowed to enter other lines of insurance. In addition, they must hold significant statutory reserves.
For Williston, the company received financial backing from San Francisco-based Golden Gate Capital, a private equity firm with $12 billion in committed capital under management across a wide variety of industries. Golden Gate did not respond to requests for comment on this article.
MORE EXPANSION LIKELY
Entering its third year, Williston continues to execute on its original business plan. That plan involves owning businesses in seven western states: Nevada, Texas, Colorado, Arizona, California, Oregon and Washington. It does not yet own any businesses in Colorado, Arizona or Nevada, although it is licensed in the last two. These are states chosen due to advantageous rates and regulations, Stone said. It also has its eye on 15 specific metropolitan areas where it wants to do business. These are metros with rich, deep automated title plans that require what Stone calls “less touch, less rekeying of data.”
“We are in the business to make money but we wanted to be intelligent in owning the market,” he says. “In the East, the business is different. It is controlled by a large degree by independent agents, including attorneys. We provide underwriting service to them and it’s mutually beneficial.”
Stone says he still sees ample opportunity for growth in the fragmented industry.
“Like anybody that is watching the national environment, we are being cautious but optimistic (about 2013).” Williston, he says, is in talks with four possible acquisition targets. It also plans on building out its Bay Area network in 2013 and adding agents in regions east of the Mississippi River.
“How aggressive we are will depend on a reasonably rational solution to fiscal cliff,” Stone says. Congress came up with a partial solution as 2012 drew to a close, but more divisive talks are expected this year as it works to cut spending and reduce the country’s deficit.
The conclusion of all this is woefully up in the air, and small business exposed to the first-time homebuyer market may be negatively impacted should the economy turn south.
Deutsche Bank analyst Joseph LaVorgna is optimistic in where the economy is going. Cautiously optimistic.
“Depending on what happens in Washington, we expect the economy’s growth rate to accelerate in the quarters ahead, notwithstanding a weak Q1; the re-imposition of the full payroll tax will lower full year 2013 disposable personal income by roughly $110 billion, but it will have its largest impact in the current quarter when households initially have to adjust to higher taxes,” they said in an email to clients.
According to the investment bank, the Obama administration and Congress will need to act further before March 1. This is when the Treasury said it will not be able to skirt the debt ceiling, which it officially hit in December. This is also when the $70 billion in budget cuts split between defense and nondefense outlays are implemented after being delayed two months.
At press time, Republicans and Democrats were still at an impasse.
“It is not surprising in this environment that small businesses have become more pessimistic on the outlook, and it is why we expect more of the same,” LaVorgna said. “Imagine how much stronger the labor market and real GDP growth would be if fiscal uncertainty was not so profound at the moment.”
To the benefit of the mortgage industry, however, the mortgage interest deduction remained intact, as did the exclusion of income taxes on debt forgiven in a short sale. Stone said the industry is also waiting to hear more from the Consumer Financial Protection Bureau about how much responsibility companies will face over the conduct of their vendors, which could involve more title agent vetting for underwriters, although Williston said it already has a robust process.
Despite some uncertainties, WFG plans to continue to execute on its growth plan while remaining fully aware of challenges in a market dominated by a handful of Goliaths.
“I was fully cognizant of the fact that there were going to be a lot of market challenges because the market was contracting,” he says. “I don’t think I was naïve about it. But I thought the timing was good. Candidly, I think I was about one year early, but it has worked out just fine.”
