Industry News, Mortgage, Story

Fidelity raises rates, cuts costs

2,000 jobs cut, 216 offices closed in wake of merger

Fidelity National Financial Inc. has raised title insurance rates in 22 states and slashed $231 million in annual expenses by firing workers and closing offices since acquiring the underwriting subsidiaries of rival LandAmerica Financial Group Inc. in December.

In announcing plans to issue 13.3 million shares of common stock, Fidelity disclosed that through the end of March it had fired 2,068 of the 5,500 workers formerly employed by LandAmerica subsidiaries Commonwealth Land Title, Lawyers Title and United Capital Title Insurance Co.

Fidelity acquired the companies a month after LandAmerica filed for Chapter 11 bankruptcy protection in November, allowing the company to overtake First American Corp. as the nation’s largest title insurer but prompting analysts at Fitch Ratings to downgrade the company’s debt (see story).

Fidelity has since closed 216 of the 500 direct title offices it acquired in the acquisition, and is cutting ties with about half of the independent title agents that LandAmerica’s subsidiaries had relationships with.

Fidelity said it has already terminated 3,000 of LandAmerica’s 7,000 agency relationships and plans to end 500 others, leaving the company with a distribution network of more than 1,300 direct residential title offices and 9,000 agents.

The $231 million in annual savings achieved triggers $20.4 million in bonus payments to company executives and employees who helped hit the target, the company said. But the paring back at Commonwealth, Lawyers and United Capital also means the companies have lost some of their historic market share.

Fidelity said that during the first three months of the year, LandAmerica’s former underwriters accounted for 16 percent of total direct orders opened by Fidelity. In 2007, by comparison, LandAmerica’s underwriters controlled a 19.6 percent share of the entire U.S. title insurance market, compared with Fidelity’s 26.7 percent share, the company said, citing numbers from Demotech Performance.

Fidelity said operations at LandAmerica’s underwriters — already suffering from a "loss of business momentum" as a result of their parent company’s Chapter 11 bankruptcy filing — "will, at least initially, be somewhat less sizable than they were historically."

But business is booming for Fidelity and other title insurers, as borrowers rush to refinance at lower rates. The Mortgage Bankers Association forecasts that mortgage originations will grow 39 percent this year over last, to $2.78 trillion, even though purchase-mortgage originations are expected to fall slightly (see story).

Fidelity said it has raised title insurance rates in 22 states, including a 10 percent increase in California. First American has announced it’s taking similar steps in California and about a dozen other states (see story).

In releasing a preliminary estimate of first-quarter results, Fidelity said revenue grew from $903 million in the fourth quarter of 2008 to $1.24 billion in the first quarter of 2009. Although much of the growth was attributable to the merger, Fidelity said direct orders closed rose from 120,500 in January to 141,900 in February, and increased again to 166,200 in March.

Editor’s note: This story has been edited to correct that the Mortgage Bankers Association is forecasting mortgage originations to grow by 39 percent this year, not 65 percent as stated by Fidelity in the prospectus supplement to its stock issue. 

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