The holidays are over, the visiting relatives safely on their way and the Indianapolis Colts . . . well, let's just say I won't be distracted too much by football the next eight months. So, I am back at it.
Over the next few days, I'll be posting about recent and expected changes in the real estate closing and title insurance world. Today, let's wrap up the most significant industry consolidation in the history of title insurance.
Lawyers Title & Commonwealth Title sold to Fidelity
Just before Christmas, Fidelity completed their acquisition of Lawyers Title and Commonwealth Title from the bankrupt LandAmerica. Matt Carter at Inman Real Estate News wrote several great articles if you want gory details. I come away with two lasting impressions of this debacle.
The failure of LandAmerica underscores the importance of carefully managing OPM (other people's money). LandAmerica's 1031 Tax Deferred business invested client assets in high yielding auction rate securities. When that market collapsed early last year, LandAmerica lost access to their client's money and eventually lost control of their company. The desire to skim a little extra income off OPM, led to the near bankruptcy of two of the oldest title insurers in the country. The irony here is that title underwriters, and many state regulators, rightfully require title agents to apply a higher standard of care to OPM than to the agent's own money. LandAmerica stupidly refused to accept that same standard themselves and paid the ultimate price.
The resulting concentration of 75 percent of the national title distribution system in just two companies, Fidelity and First American, bears close scrutiny as the consolidation plays out. Will these two companies, both sharing the goal of improving profitability, be able to dictate pricing and service levels to their clients without fear of a competitive environment? How will these companies use this market position to leverage new regulatory rules to their advantage? If this business combination becomes abusive, I will not be surprised to see the FTC revisit the situation in a few years.
All in all, a sorry situation that did not need to happen.
Stop back in a couple of days to learn about how falling interest rates and the resulting dramatic increase in title orders may affect your next closing.
Happy New Year and best wishes for a successful 2009!
Thanks for the post. Nearly everytime we get to the point that there is little to no competition, it seems to be detritous to the common good. We'll see what happens. I'm interested in reading your next post.
at least your Colts made the payoffs - my Skins crashed and burned this year
Don't you just love monopolies? Prices go up and service goes down. The way around that is to not borrow money on your next purchase and have a full abstract of title run. That's not cheap either.
I can't imagine why these mergers were allowed to happen. I can't see how any authority to deem this to be a good idea. It smells of corruption in our government.
Happy New Year
Suzanne: You're right. Detritus. Fidelity and First American's combined share in Minnesota is now one of the highest in the country. Whatever is going to happen may happen there first.
Randall: 'Skins need new ownership. The new coach did OK.
Mike: Monopolies are OK --- until you land on Boardwalk! lol
Christian: Matt Carter reported that the eminent failure of LandAmerica trumped the concerns about a concentrated market. In the short and medium term, that's probably the correct call. Fidelity played this really smart. They left the various regulators and BK participants with no options.
Thanks to all for stopping by.
John: Thanks for the update. We are indeed living in interesting times. Yesterday was one of the few days where there were no rate changes. I always like that! Take care.
John,
Nice summary of the moves at the end of the year... I moved to the desert from San Diego 9 years ago, and I'm sorry to say that your misery last Saturday was a day of great joy for me and my son...
You got your SuperBowl a couple years back. How about a championship for a city that only has an AFL Title in '61? I know, long ways to go...
Most of the time consolidation does not benefit the consumer.
John, thanks for the valuable information. It will be interesting to see how things shake out.
John - Great analysis. I did not fully understand the consequences of what happened or that there would be more consequences to follow. Nice to hear from a fellow Hoosier!
Paul: Oh for a stable, predictable market . . .
Bill: At least we're not Detroit Lions fans! lol
Mike: I agree with you.
Gabe: There's certainly going to be some shake out. Especially in markets where the Fidelity companies already command significant market share and LandAmerica is just an also ran.
Pat: Thanks Pat! In your market both companies are fairly well established. It will be interesting to see what happens there.
Joh, More mergers. I just don't like it when we have big monopolies and therefore less choice.