NEW YORK ( TheStreet) -- Investigations into foreclosures of home lenders such as JPMorgan Chase ( JPM) and Ally Financial should not affect the title insurance business, but the market is punishing the stocks nonetheless.
Title insurers' stock took hits on Friday after reports that they are backing away from doing business with JPMorgan's foreclosed properties due to rising concerns that faulty documentation on a foreclosed property could lead to the new owners facing legal action by the former owners over the property title.
On Friday Fidelity National Financial's stock fell 4.5% to $15, while First American's (FAF) stock slid 3.4% to $14.43. Monday morning Fidelity National's stock opened down 11 cents at $14.93 a share, while First American's stock opened down 15 cents at $14.33 a share.
Old Republic National Title Insurance said on Friday that it will no longer write polices for properties foreclosed by JPMorgan.Meanwhile, Fidelity National Financial (FNF) put out a press release reacting to a Bloomberg story that claimed that the defective documentation would blight titles. In the release Fidelity argued that the investigations will not have an adverse impact on its title business for several reasons, including the fact that new owners and their lenders would have the rights of "good faith purchasers" that should not be affected by poor documentation. The statement also noted that even if a judge sets aside a foreclosure, the lender would be required to return all funds and would result "in no loss under the title insurance policy." The American Land Title Association (ALTA) also issued a similar release. RBC analyst Mark Dwelle and KBW analyst Nathaniel Otis told TheStreetthat the investigations into the foreclosure ruling should have little impact on the industry. "There is nothing in the disputes for foreclosures and the foreclosed that would create a title break," Dwelle said. "Really the biggest challenge right now is the real estate market, which is just lousy." "It doesn't look like the title companies should have any real exposure," Otis said. Three insurers own about 85% of the market, according to Dwelle. The largest title insurer is Fidelity National Financial. The second largest title insurer is First American Financial Company (FAF). Stewart Information Services (STC). is the third largest player in the market. Dwelle said that second results for the insurers were better than 2008 and 2009, but not as positive as results for 2005 and 2006 due to the housing market. "Insurers were helped in the second quarter by first year home buyer credit and this quarter they should be doing pretty good due to refinancing activity." "The challenges in the market right now are really lower order volumes and well as companies getting expense bases in line with those order values," Otis said.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV