Market Trends inTitle Agency & Settlement Services
Pennsylvania Land Title Association
The Homestead
June 5, 2006
Joe Casa, Founder and Publisher
October Research Corporation
3
Future Trends
1. Mortgage fraud
2. Predatory lending
3. RESPA Reform (consumer shopping, packaging)
4. MLS Ownership/access
5. AfBA – CBA’s Title insurance rates
6. Realtor commissions/FISBOI
7. Immigrant markets
8. E mortgage
9. GSE Reform
10.Public record access
4
Future Trends
• Market & customer needs– Packaging continues as centerpiece of lenders & builders
• Unique bundles
• AfBA Offerings
– High technology integration• Data scraping
• Fuzzy logic
• Transaction Management Platforms
– Title & settlement technology• ASP vs Desktop.
• VMC OMF vs title production
• Costs to get connected
5
Future Trends
• Products and Services– Full title products to lose share as a % of total market
– Market bifurcation & segmentation
– Substitute and low-cost products in demand • Balloon, refis
– new note only requires endorsement
• Underwriter substitutes
– Unique bundles requirements emerging
– VMC services needed in purchase markets• Pest & home inspection, surveys
6
Future Trends
• Consolidation in all sectors– Settlement services, mortgage, real estate
● 25 important companies in each segment
– Small and large firms best positioned• Local agency strategy should differentiate
on consumer closing experience
– Commodity-like markets emerging• How do you differentiate?
• Rates increase– Refi continues to normalize
– Equity stable but cost pressures continue
– Purchase markets strong
7
Future Trends
• Good closing experience at a premium– Critical path to success
– Market pressure on closing costs will ease
– Chicago Tribune
• By one estimate, three out of every 10 mortgage settlements have at least one error. The mistakes cost the lending industry millions of dollars that some say are passed on to homebuyers and sellers as excessive fees. Errors range from poor spelling to mistakes in calculating escrow payments for property taxes. Escrow errors often involve use of an outdated assessment rate by the closing agent, attorney, or escrow company to determine how much money the borrower will pay each month, together with the mortgage payment.
8
AfBA Markets
– Competitive positioning • Title companies, law firms, settlement services
– New earning streams • Realtors, originators and builders
• Revenue per transaction >$250
• Expanded product model >$500
– Enhance consumer experience• Wachovia, Citi, BA,
– Process improvements – Risk mitigation• Lending Tree, Quicken, E Loan
9
In the Cross Hairs
• Regulatory Environment– RESPA Reform
• GFE Lite
– State CBA statutes • NY Settlement
• DOI Initiatives
• GLB passes banks on DOI rules
• Outside business vulnerability*
– Plaintiff bar*• Class action (Ohio)
• Disclosure and steering claims
10
Research Results
– Origination Data
– Transaction Management Efficiency Report
– Title Agency System
– National Mortgage Origination Survey
– National Closing Survey
– Independent Title Agent Survey
– Title Agent Technology Study
11
785 785 859
1450 13101048
2215
2885
3945
29203120
2340
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
$4,500
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006E
In M
illio
nsOrigination Volume
12
58.6%63.1%
72.0%
51.7%47.8%
42.1%
2001 2002 2003 2004 2005 2006YTD
Re-fi Share of Mortgage Originators
13
44% 47% 45% 47% 48%
74% 77% 80% 83% 87%
2002 2003 2004 2005 2006
Top 5 Top 25
Mortgage Share of Top Originator
14
Impact of Transaction Management Systems on Title Agency Costs
(Purchase transaction)
30%30%8%44%33%33%24%
2.3 hrs.137 min.4 min.9 min.99 min.15
min.11
min.TMS Savings
TMS Savings Per Transaction
5.5 hrs.328 min.47 min.11 min.205 min.30
min.35
min.TMS
7.7 hrs.465 min.51 min.20 min.303 min.45
min.47
min.Traditional
Total Time
(hours)Total Time (minutes)
Escrow WarehouseProcessorCloser
Title Plant
Order Entry
Process
15
Impact of Transaction Management Systems on Title Agency Costs
(Refinance transaction)
27%27%11%56%29%33%11%
1.5 hrs.91 min.5 min.11 min.58 min.15
min.3 min.TMS Savings
TMS Savings Per Transaction
4.1 hrs.247 min.44 min.8 min.145 min.
30 min.
20 min.
TMS
5.6 hrs.338 min.49 min.19 min.203 min.
45 min.
23 min.
Traditional
Total Time
(hours)Total Time (minutes)
Escrow WarehouseProcessorCloser
Title Plant
Order Entry
Process
16
Home Equity Market Value
All sub prime and prime on loans greater than $200k LTA Title Insurance/closing
Used on best customers with scores above 630 Short title/property reports
Used on best customers with scores above 630 Deed Report
Usage Assumptions
2,808,146,362 8,707,277
2,513,574,972 $750 3,351,433 LTA Title Insurance/closing
187,454,520 $70 2,677,922 Short title/property reports
107,116,869 $40 2,677,922 Deed Report
Total Value Avg. Price # Transactions Title Product
Based on 5.9m prime home equity loans originated and 2.8m sub prime loans.
17
Title AgencyTechnology Adoption
(Refinance Before/After)
21%21%15%46%34%-8%
$3.21
$4.75 $8.62 $10.29 $0.92 ($0.63)Tech Savings ($)
$12.06
$17.78 $48.07 $12.06 $1.80 $8.57 Tech Install
$15.27
$22.53 $56.68 $22.35 $2.72 $7.93 Pre-Tech
Post PackagingEscrow
OfficersClosing
DeskReadingExam/
Municipal
Order/ Data Entry
18
Title AgencyTechnology Adoption
(Refinance Before/After)
13.40%26%0%6%0%27%
$29.71 $0.44 $0.00 $0.04 $0.00 $2.10 Tech Savings ($)
$191.79 $1.26 $64.00 $0.65 $19.83 $5.71 Tech Install
$221.50 $1.70 $64.00 $0.68 $19.83 $7.81 Pre-Tech
OverallPhoneCouriersFaxesRecordingFunding
19
AfBA Markets
AfBA Financial Model
Title Insurance
Sales 100.0%
Cost of Sales
Information Labor 33.0
Labor (NE) 10.0
Total Labor 43.0
Cost of Premium 5.0
Other Direct Exp. 4.0
Total Cost of Sale 52.0
Gross Profit 48.0%
ABA Financial Model Vendor Services
(Valuation, pest, home)
Sales 100.0%Cost of SalesContractor fee 70.0Labor (NE) 5.0Total Labor 75.0
Other Direct Exp.. 2.0Total Cost of Sales 77.0
Gross Profit 23.0%
Independent Title Agent Survey
21
Independent Title Agent Survey
• Survey objectives
– Profile the independent title agent
– See the market through their perspective
– Learn about their business practices
– Understand their technology usage and needs
– Learn what influences them to do business with others
22
Independent Title Agent Survey
• Survey methodology– 30 minute phone interviews with agency owners/GMs
– Agencies qualified by size and number of years in business
– No direct operations included from top five underwriters
– Survey data collected & analyzed by professional statisticians
– 450 surveys conducted in four U.S census regions• National yellow pages
• Conducted proportionately to agent population
23
Independent Title Agent Survey
Three Volumes
● VOLUME I: Measures and analyzes independent title agents’technology and software preferences, including usage, satisfaction and selection techniques, and future needs.
● VOLUME II: Reports independent title agents’ perceptions and preferences about underwriters, and key business practices.
● VOLUME III: Surveys the largest agency operations in the country; reports their perspectives on the same key technology preferences and business practices as above.
24
Independent Title Agent SurveyBusiness Perspectives
General Agent Survey
Total Office Revenue
<$1 mil.53%$1-2 mil.
35%
$3-5 mil.7%
$6-10 mil.2%
>$20 mil.2%
$11-20 mil.1%
25
Independent Title Agent SurveyBusiness Perspectives
General Agent Survey
Number of Years in Business
2-5 yrs.26%
6-10 yrs.18%
11-15 yrs.12%
16+ yrs.44%
26
Independent Title Agent SurveyBusiness Perspectives
Greatest Opportunity in the Next 12 Months
18%
7%
4%
4%
4%
4%
5%
14%
16%
25%
0% 5% 10% 15% 20% 25% 30%
None/can't think of any
Other opportunities
Referrals/good contacts
New/upgraded technology
Lower/stable interest rates
Good economy
Affiliated business arrangements
Growing home sales/new construction
Expand geographically/open new offices
Grow business/increase share & customers
27
Independent Title Agent SurveyBusiness Perspectives
Controlled/Affiliated Business Arrangements With Other Companies
Do have CBAs27%
Do not have CBAs73%
28
Independent Title Agent SurveyBusiness Perspectives
Most Popular Sources for Industry News
6%
6%
6%
6%
8%
10%
21%
49%
67%
0% 10% 20% 30% 40% 50% 60% 70%
Wall Street Journal
The Legal Description
State/regional Land Title assns.
Settlement Services Today
RESPAnews.com
National Mortgage News
Title News (ALTA)
The Title Report
Underwriters bulletins/newsletters
29
Independent Title Agent SurveyBusiness Perspectives
Agency Business Perspectives
30
Independent Title Agent SurveyBusiness Perspectives
• Most large agents are open to trying new underwriters. To get their business, the underwriter would have to provide attractive premium splits and fees and bring in new clients.
• Large agency managers were much more open to switching underwriters than smaller title agents.
31
Independent Title Agent SurveyBusiness Perspectives
General Survey
Primary Underwriters
12%
3%
3%
3%
6%
9%
9%
10%
13%
15%
18%
0% 5% 10% 15% 20%
All Others
United General Title
Transnation Title
Ticor Title
Old Republic National Title
Lawyers Title
Commonwealth Land Title
Fidelity National Title
Chicago Title
Stewart Title
First American Title
32
Independent Title Agent SurveyBusiness Perspectives
Primary Underwriters
20%
4%
4%
5%
9%
9%
13%
13%
25%
0% 5% 10% 15% 20% 25% 30%
All Others
Title Resources Guaranty
Land Title
Lawyers Title
Old Republic National Title
Fidelity National Title
First American Title
Chicago Title
Stewart Title
Large Agent Survey
33
Independent Title Agent SurveyBusiness Perspectives
Number of Other Underwriters Used Regularly (Besides Primary & Secondary Underwriters)
None73%
One14%
Two7%
Five1%
Four2%
Three3%
General Agent Survey
25% Use more than 2
34
Independent Title Agent SurveyBusiness Perspectives
Favorite Underwriter(among 39% who use two or more underwriters and have a favorite)
32%
9%
9%
9%
14%
14%
14%
0% 10% 20% 30% 40%
Others
Title Resources Guaranty
First American
Fidelity National
Stewart Title
Old Republic
Lawyers Title
Large Agent Survey
35
Independent Title Agent SurveyBusiness Perspectives
Underwriter Staff Member Who Most Influences Favorite Lender Status(among 39% who have a favorite underwriter)
42%
20%16%
8% 8%4%
0%
10%
20%
30%
40%
50%
No par
ticula
r per
son
Account
repr
esen
tativ
eAtt.
/under
writ
ing c
ounsel
Regio
nal m
anager
Title m
anage
r
CEO
Large Agent Survey
36
Independent Title Agent SurveyBusiness Perspectives
How Often Are Agencies Asked or Pressuredto Insure Over Certain Items?
Asked sometimes33%
Never asked27%
Asked very often20%
Asked rarely20%
37
Independent Title Agent SurveyTechnology Perspectives
Technology Perspectives
38
Independent Title Agent SurveyTechnology Perspectives
General Agent Survey
Brand of Software by Product
SoftPro
(FNIS/SoftPro)51%
Developed in-house
10%
LandTech for
Windows10%
TSS Title Express
9%
AIM for Windows
(Landata)20%
39
Independent Title Agent SurveyTechnology Perspectives
Primary Uses of Software
89%
89%
93%
95%
98%
0% 20% 40% 60% 80% 100%
HUD applications orforms
Escrow & closingdocuments
Order management
Order entry
Commitment & policyproduction
General Agent Survey
40
Independent Title Agent Survey
Doing business online
• What percentage of your incoming orders and outgoing products are transmitted online via PDF/Data packets (not including e-mail messages)?
● >50% say less than 10% of their products
are delivered electronically
● 12% say up to 20%
● 10% say up to 40%
● 18% say up to 60%
41
Independent Title Agent SurveyTechnology Perspectives
A gencies & t heir R ealt o r C ust omers' U se o f Transact ion M anagement Syst em Plat f o rms
U se p lat f o rm11%
D on' t use p lat f o rm
6 8 %
D on' t know/ don' t
know what it is
2 1%