Deeper cuts in store for title insurer
Battered by the housing market downturn, giant title insurer First American Corp. said Tuesday that it would slash 1,300 jobs, institute a hiring and salary freeze and cut certain unspecified executive perks and benefits to reduce expenses.
The job reductions at the Santa Ana-based company amount to 3% of the workforce and follow the elimination of 600 positions after the company posted a surprise second-quarter loss because of the housing slump.
Combined, the cutbacks will save $108 million a year, the company said.
“Business is more challenging,” Chief Financial Officer Frank McMahon told a group of Wall Street analysts Tuesday at an insurance conference. He didn’t rule out taking additional steps to cut costs “if business conditions don’t stabilize.”
First American spokesman Steve Schultz didn’t say where the cuts would be concentrated except to say the layoffs would be “very spread out.” First American, which has about 40,000 employees, operates throughout the U.S. and has 2,500 branch offices. McMahon told investors at least 40 branches would be shuttered.
The nation’s housing downturn is taking a toll on real-estate-related companies, and title insurers are no exception. Last week, LandAmerica Financial Group Inc., the No. 3 title company, said it would cut 1,100 jobs.
Earlier this year, First American announced that it was beefing up reserves to combat rising defaults, foreclosures and fraud. Title claims to the company jumped 62% in the first half of the year from the year-earlier period, and executives expect claims to climb even more in the second half of 2007.
On top of paying out more in claims, First American is simply doing less business. Home sales are down about 10% nationally from a year ago, and mortgage refinances are also down, reducing demand for title insurance.
Mortgage lenders require borrowers to buy title insurance to ensure that a property can be legally transferred. In the case of a refinancing, title insurance ensures that the home is legally owned by the borrower.
McMahon said the company’s title orders in August were down 13.5% from a year ago and down 7.2% from the previous month.
First American shares fell 43 cents, or 1%, to $41.40 in regular trading Tuesday and slid an additional 2% after McMahon’s comments, delivered after markets closed.
Yet, some segments of First American’s business are up. McMahon said operating revenue for its information technology business, which represents about one-third of all revenue, rose 15% in the second quarter.
Still, nearly two-thirds of First American’s revenue comes from its title insurance business. Over the last three years, the company has sent many of its jobs overseas and, as of the second quarter, had 5,500 employees in India and the Philippines.
McMahon said offshoring some of its positions had helped the company save money, and he suggested that First American could step up its efforts. In its mortgage information business alone, he said, 25% of its employees were based overseas in the second quarter, up from 11% a year earlier.