Title insurance outlook upgraded on lower rates

Lower mortgage rates will benefit title insurers in the next two years but the real opportunity will not be from the obvious increase in refinancings, but improved purchase business, said Keefe, Bruyette & Woods.

Estimates and price targets were increased on the three title insurers KBW analyst Bose George covers: Fidelity National Financial, First American Financial and Stewart Information Services. Lower mortgage rates will drive increased activity in both 2025 and 2026 and that will benefit title insurance activity.

"While lower rates will likely spur an increase in refinance activity, we believe the real opportunity for the title insurers will be in the event purchase volumes improve year-over-year, as the fee-per-file on residential purchase transactions is roughly three times that of refinance transactions," George said. "Lower mortgage rates could also lead to a pickup in commercial real estate activity, which would be further amplified if buyers and sellers come closer together on pricing."

KBW's forecast for closed purchase orders was updated for an annual increase of 12% in 2025 over this year and for 10% for 2026 on average for the group compared with the prior 8% and 10% respectively. The closed refi order estimates were hiked to an annual gain of 18% from 12% for 2025 and 15% from 12% in the following year.

However, even with mortgage rates falling in recent weeks, year-to-date refi levels have created a low base for growth into 2025. Plus because of that higher fee per file, the majority of the benefit from the change to KBW's earnings per share estimates is due to the increase in purchase volume expectations.

Aaron Davis, CEO of Florida Agency Network and Closing Suite, is also confident that mortgage rates will be lower next year. No matter what the outcome of the upcoming election, both presidential candidates and their respective political parties are suggesting policies that would impact housing on multiple fronts, Davis said.

"We could see new housing affordability programs and first-time home buyer credits," Davis said. "We may or may not have tax cuts. All of these things will have an impact on the title insurance industry and transaction volume."

Jim Paolino, the CEO and co-founder of Lodestar Software Solutions, earlier this year started a title agency, Settlewise. While rates have apparently been a factor in the "meh" housing market this spring and summer, "the biggest issue with purchase volume is inventory; that's the biggest question mark I would have with purchase volume picking up," Paolino said.

Low rates will help more potential buyers in terms of affordability, but it will be a slow uptick in terms of purchases.

If an uptick in title volume were to occur, it would be one supported by refinancings rather than purchases.

"In the short term, it's going to be very refi driven," Paolino said. "You basically have two years' worth of production that can get refinanced now, so that's really, in my opinion, going to drive the majority of the mortgage application increase in the near term."

Purchase volume is not going to decline, he continued, it is just not going to go up as dramatically.

He noted the difference in the title fees between refinances and purchases. In the short term it is possible the increase in refi volume could make up the difference.

In the long-term, purchase business is more important, adding that when it comes to title, it is almost like they're "two different industries."

Another factor that some fear could cut into title insurer activity is the use of alternatives, including attorney opinion letters and the secondary market's title waiver pilot.

Title insurance gets easily maligned because people don't understand how it works, Paolino said.

But as for those alternatives, he continued, "I don't think it's going to have the backbone and the teeth that are needed once claims start happening."

What might be more interesting from a competitive perspective is the now-implemented changes resulting from the National Association of Realtors settlement on real estate broker commissions, Paolino said. Those changes are likely to shift the dynamic in the relationship with the homebuyer.

"I think that's a huge open question right now, because the Realtors, specifically the buyer Realtors, are in such a good position with referring title insurance," Paolino said. "That could change, I don't know what it's going to look like, but I think there's a lot of open questions."

Even with rates down by 38 basis points in August, according to Freddie Mac, it is not enough to bring the bulk of current borrowers back into the mortgage market to refinance.

"In my opinion, this reduction in interest rates is more likely to soften the edges around the purchase market than it is drive hardcore tsunami in finances like we saw in 2020 and 21, the main reason being too many folks are under 3.5% still," David Sober, senior vice president of enterprise business development at Voxtur Analytics said.

Voxtur Analytics' title agency recommends whether the transaction needs a title insurance policy or if an AOL is sufficient based on what is the best execution in terms of protecting both the borrower's as well as the lender's interest.

The AOL is also accepted for both purchase and refi transactions, unlike the title waiver, Sober noted. That is because the risk involved with a property sale is different.

So how much business an alternative can pick up versus a traditional title insurance policy is unknown because when it comes to fees, the market is "fragmented and unstandardized" based on characteristics such as loan type, geography and more, Sober said.

Voxtur uses its Rate Advisor Platform "to make sure that we're routing the borrower, or whoever the stakeholder on that particular loan is, to the product that best fits them given the parameters of their transaction," he explained.

Certainly, some moderate to mild threats to the title industry's market share exists because of the alternatives such as AOLs, waivers or even something that doesn't even exist yet, as a shift is occurring in the way regulators are thinking about title insurance and closing costs.

"I view it as now, the consumer has another option to choose from that may make sense for them on a given transaction," Sober said. "I think on a good number of transactions, it will, but I don't expect that we're going to see a transformation in the market just due to the AOL product overnight."

If anything, nearly all the transactions are getting a standard title policy, so nothing right now is enough to adjust a broader macroeconomic forecast about the title business, he said.

The title business goes as the mortgage industry does and while rates haven't fallen low enough to bring it back into 2021 territory anytime soon, "after the past two years, any relief for us in the industry is good," Sober said.