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the latest ORIGINATION Or ig i nat ion Origination Trends on Track for Reversal M As housing's recovery forges on, research from Fitch displayed a sustainable pattern of improvement for the title industry. In addition, title revenues increased by more than 15 percent from January to September 2012, as refinancing activity outpaced expectations and housing markets found solid ground. The period's underwriting combined ratio reached 90.7 percent, a level not seen since 2006. "The title insurance industry is benefitting from an improving housing market that is showing less home inventory and increasing home prices nationally," Fitch says in its report. While mortgage originations are expected to fall off somewhat this year, Fitch notes that the drop will mostly be driven by a decline in refinance activity, which will be offset by growing purchase originations. As the agency points out, "Purchase orders typically bring in twice the revenue of refinance orders for title insurers." Additionally, open order counts for title underwriters were 20 percent higher at third-quarter 2012 compared with the same period in 2011. According to Fitch, the order flow should provide a "strong pipeline of activity for the first half of 2013 and a cushion against a potentially weaker second half in an uncertain economic environment." As a result, revenue is expected to grow this year, though at a more modest rate than in 2012. While capital strength varies from company to company, Fitch says it continues to view the industry as "adequately capitalized." The biggest threat to the industry at this point, Fitch says, is Washington's potential failure in avoiding the fiscal cliff. If that were to occur, economic growth would fall off drastically, leading to sustained mortgage and real estate market activity declines and a "return to sizeable title insurer operating losses and capital deterioration." On the other hand, if the cliff can be avoided and the housing market is allowed to grow further, Fitch anticipates an improvement in industry capitalization to historical levels. The M Report | 39 se c on da r y m a r k e t W ith revenue up and the housing market showing a sustained recovery, Fitch Ratings says the outlook for the U.S. title insurance industry is "stable." According to the ratings agency, its stable rating outlook is based on its belief that "ratings actions for the industry will, on balance, approximate current levels over the next 12 to 18 months as financial performance has improved recently." The agency points to improved revenue and reduced expenses as signs of stability. Operating profit margins for Fitch's title universe rose to 10.3 percent in the first nine months of 2012, a dramatic jump from 6.1 percent during the same period in 2011. Earnings improved for all underwriters, but the real stars were First American Financial and Fidelity National Title, which both posted pretax earnings in the hundreds of millions of dollars. a na ly t ic s Title Insurance Outlook Declared 'Stable' ortgage originations for one- to four-family homes rose steadily last year, yet refinances made up a bulk of the activity recorded to date, according to the latest forecast from the Mortgage Bankers Association (MBA). Over the third quarter of 2012, about $471 billion in mortgage loans were originated, up from $395 billion in the second quarter. MBA expected to end 2012 with about $507 billion in originations in the fourth quarter. The total dollar amount of mortgage loans originated for 2012 should be about $1.746 trillion, according to MBA. Despite the steady rise over 2012, MBA predicts somewhat of a lull this year, with about $431 billion in loans originated in the first quarter, dropping to about $233 billion by the fourth quarter of 2013. Additionally, while originations rose each quarter in 2012, so did the share of refinances making up that total. In the first quarter of last year, refinances made up about 68 percent of all loan originations. The MBA expected refinances to make up 77 percent of fourth-quarter originations. Purchase originations have not moved quite as steadily over the year. First-quarter purchase originations totaled about $119 billion. They rose to $132 billion in the second quarter before dropping in the third and were expected to end the year where they started, with about $119 billion in originations. However, 2013 will be a year of reversing trends in originations, according to MBA's forecast. Refinances, after ending the fourth quarter of 2012 with about $388 billion in originations, are expected to fall to a mere $93 billion by the fourth quarter of 2013. The opposite will occur for purchase originations, which are expected to rise to $125 billion in the first quarter and reach $140 billion in fourth-quarter 2013. The share of refinances in total mortgage originations was expected to fall from 71 percent overall in 2012 to 56 percent in 2013 and even further down to 33 percent over the year in 2014, according to MBA. s e r v ic i ng According to the MBA, the mortgage marketplace may be headed for a lull in 2013.