First American Posts Q3 Loss

The First American Corp. (FAF) reported a $8.3 million net loss — or 9 cents per share — for the third quarter, compared to net income of $46.6 million, or 49 cents per share, in the year-ago period. The Santa Ana, Calif.-based title insurer and real estate information services giant swung into the red as it absorbed an after-tax loss of $29.6 million on its investments, and another $19.3 million in losses tied to employee layoffs and benefits restructuring. Not surprisingly, also driving losses were strong headwinds in the nation’s battered housing market, which affected title insurance operations. First Am said its title insurance services business lost $27 million during the quarter, as revenues fell to $964.7 million, off 30 percent from one year earlier. See the full earnings report. As is the case with other title insurers, First Am saw direct title orders fall sharply: the company closed 323,200 title orders in Q3, off 22 percent from the 415,000 orders closed in the third quarter of 2007. It’s worth noting that competitor Fidelity National Financial Corp. (FNF) saw a similar decline in direct title orders during Q3, closing just 260,600 orders during the second quarter, off more than 23 percent from one year earlier. First American, like other title insurers, is shedding staff amid falling revenue — and said it let go of approximately 1,250 employees during the third quarter. It’s also boosting its reserves for claim losses on title policies, and said its loss provision rate was equal to 7.1 percent of operating revenues during the quarter, compared to 6.5 percent one year earlier. Not surprisingly, the company also said it is expecting more claims on its policies, as well — such claims usually tend to spike along with default activity. First Am said its expected claims experience for policy year 2008 was increased to 6.5 percent from 6.2 percent. Heat felt outside of title insurance, too Company officials have been moving aggressively to both right-size and restructure First American’s sprawling non-title information and outsourcing businesses, as well. Among some changes is a realignment of the company’s information services businesses, including the company’s default-related outsourcing businesses. In general, First American’s overall information services and outsourcing business lines saw revenues fall for those products/services tied to origination activity, while a pickup in demand for default-related and risk management-related services helped cushion the blow somewhat. In particular, the company’s data and analytic solutions line of businesses — which include the well-known LoanPerformance, among others — was hit particularly hard during Q3, and saw pretax income fall more than 60 percent year-over-year, with the company citing ongoing mortgage market woes. Poor market conditions “have resulted in a decrease in demand for many of the segment’s products sold to home equity lenders, mortgage bankers and title insurance companies,” the company said, although it noted that an increase in risk analytics sales to investors helped offset losses somewhat. The company is aggressively looking to bring new products and services to market for the investment community, Frank McMahon, First American’s vice chairman and chief executive officer of the Information Solutions Group, said. The company had planned to earlier this year spin off its information services business, a plan that has since been shelved while the company waits for improved market conditions. Write to Diana Golobay at Disclosure: The author held no positions in any of the stocks mentioned when this story was published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.

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