Kroll Predicts Title Industry to Remain Stable Despite COVID-19 Headwinds

Despite the negative impact of the COVID-19 pandemic, Kroll Bond Rating Agency (KBRA) says in a new report the overall financial strength of the U.S. title insurance sector in 2020 remains stable. The ratings firm does believe some of the independent title insurers with elevated equity holdings and lack of scale will be tested. Multi-state writers with market share leadership positions should fare better than companies with limited geographies and operations.

“With record levels of surplus entering 2020, KBRA believes the sector remains reasonably positioned to weather macroeconomic headwinds this year,” KBRA said in its report. “Our near-term expectations are that operating results will be dampened but remain strong enough to maintain financial strength consistent with current rating levels.”

KBRA believes the expected surge in mortgage refinancings should offset investment declines, leading to the sector’s ninth consecutive year of net income . As a result of COVID-19, KBRA has lowered its 2020 premium projection premium to around $13 billion from the previous estimate of $15 billion.

The projected jump in refinancing is driven by the interest rate environment as well as by homeowners looking to lower monthly expenses given the economic environment. Title insurance premium revenues are directly connected to the volume of mortgage originations. Although total originations are forecast to be flat, KBRA anticipates a sharp premium decline to reflect the higher proportion of refinanced title insurance premiums which are typically 15-50 percent lower than for new home purchases. A decline in large commercial premiums will also be significant, KBRA noted.

There are indications some lenders may be less willing to offer refinancing transactions. The Wall Street Journal reported that Wells Fargo could curtail its programs for making large loans, only offering refinance jumbo mortgages for customers who hold at least $250,000 in liquid assets with the bank. If this trend continues, KBRA anticipates a downward revision for the MBA’s May forecast, which would have a similar impact on KBRA’s industry premium projection.

The report noted that regulators and politicians have taken swift and favorable actions that benefit the title industry. On March 20, for example, a bipartisan coalition of senators proposed legislation “which would permit immediate nationwide use of remote online notary (RON) with minimum standards and provide certainty for the interstate recognition of RON. With the need for social distancing to help prevent the spread of the virus, we want to provide options to consumers to close their transaction remotely nationwide,” said Diane Tomb, ALTA’s chief executive officer.