Profit of Orange County-Based Title Insurance Company Slips

Feeling the effects of a slowing housing market, First American Corp. reported a 9% drop in profit in the second quarter, prompting job cuts at the title insurer as the pace of home refinancings cooled.

The Santa Ana-based company’s net income for the three months ended June 30 was $116.5 million, or $1.27 a share, compared with $127.5 million, or $1.47, a year earlier. Revenue climbed 12% to $1.72 billion from $1.54 billion.

The results, released late Tuesday, beat Wall Street expectations of $1.14 a share, according to Thomson First Call.

They included a $5.2-million charge related to a lawsuit.

During the period, the company continued to streamline operations with more efficient technology and outsourced certain functions to the Philippines and India.

Without the charge, earnings would have declined 6.4%.

During the second quarter, the nation’s red-hot housing market began to cool as mortgage rates ticked higher and the Federal Reserve raised its target for short-term interest rates. That took some of the steam out of homeowners’ eagerness to refinance their mortgages.

As a result, First American saw refinancings drop to a third of its title order volume from more than half a year ago.

In all, the company expects to trim as many as 600 positions in the United States in coming weeks, said Gary Kermott, president of First American’s title insurance unit, which employs about 14,000.

There may be additional cuts later, Kermott added, “depending on how orders hold up” in August and September.

First American has taken the appropriate tack by trimming staff as orders slow, said Geoffrey Dunn, an analyst with Keefe, Bruyette & Wood. “The difficult question for companies like First American is how fast are things really slowing.”

In addition to title insurance, First American also is a major provider of data to the real estate industry.

Shares of First American rose 44 cents Wednesday to $26.10 on the New York Stock Exchange.