Fitch: Several Forces Pressure Title Insurer Revenues
NEW YORK--(BUSINESS WIRE)--2014 revenue growth for U.S. title insurers is likely to be constrained by several forces, particularly any further rise in interest rates, according to Fitch Ratings. This is in contrast to the steady revenue growth and improving margins U.S. title insurers enjoyed during the past two years as mortgage and property markets recovered.
The 30-year average mortgage rate is currently 4.4%, up almost 100 basis points from the beginning of 2013. Although still below historic averages, Fannie Mae is forecasting the rate to increase to 5.1% by year-end 2014.
While this increase is partly attributable to the economic and housing market recovery, rising interest rates will likely damper reverse the unprecedented trend of refinance activity that has bolstered title insurers' revenues for the past several years. On average, since 2009 67% of all mortgage originations have been related to refinancing activities according to the Mortgage Bankers Association of America (MBA).
Temporary government programs also fueled refinancing activity in the past four years. However, the number of eligible participants for programs like the Federal Housing Finance Agency's (FHFA) Home Affordable Refinance Program (HARP) is declining. Housing prices have turned positive in many markets and demand for HARP loans will be affected by any rise in interest rates as well.
HARP was established in 2009 as a program to assist homeowners unable to refinance their mortgage when housing values declined to level below outstanding loan balances in the economic recession. The FHFA recently announced that 3 million homeowners have taken advantage of this program through November 2013. HARP was recently extended and is now set to expire on Dec. 31, 2015.
One factor that can offset other top line pressure is the recent increase in new housing construction. Still, title insurer revenues are more likely to modestly decline in 2014 versus the prior year. Title insurers' expense structures are in a considerably better position today to remain profitable and withstand a decline in market activity relative to the downturn of 2007-2009.
Additional information is available on www.fitchratings.com.
The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.