Fitch: Government Shutdown Could Squeeze Title Insurers’ Margins

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The government shutdown will negatively impact virtually all sectors in the housing industry. Yes the longer it continues the more it will impact most companies’ bottom line. As an example our company will see no new revenue until HUD is back up and running for about 3 or 4 weeks. On the bright side we have approvals ready to go when Congress decides to do their job and get things back on line. If we didn’t have adequate reserves our company would be in trouble. For a more detailed look at this subject please read the article below.

The FHA Condos Approval Company, Inc.

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A key variable in determining the impact of the government shutdown will be its duration. According to Fitch Ratings, title insurance companies may be among the first in the housing sector to feel the reverberations of a Congress that “is failing the American people,” as Thomas E. Mann and Norman J. Ornstein of the Brookings Institution so frankly put it.

Title insurers are sensitive to macroeconomic factors such as employment levels, consumer sentiment, and interest rates, and therefore the duration of the shutdown is a vital factor in determining its affect. The longer the government shutdown lasts, the bigger the potential profitability impact to title insurers.

Fannie Mae and Freddie Mac operations have been largely unaffected. However, to the extent that these agencies rely on verifications and other functions from other government agencies (notably the Internal Revenue Service, Social Security Administration, and HUD), title closings could be delayed or cancelled, Fitch explained. The Federal Housing Administration is more directly affected by the slowdown.

As the shutdown duration increases, these government entities—the largest home financiers in today’s marketplace—will not be adequately able to process demand for their services, thereby decreasing mortgage originations and title orders, Fitch warns.

From a broader economic perspective, Goldman Sachs estimated that if the shutdown had ended Sunday night, lasting only one week, fourth-quarter GDP growth would have been cut by 0.2 percent in Q4 on an annualized basis. Should it extend for two weeks, expect a 0.4 percent reduction in GDP growth. Fitch says Goldman Sachs is predicting a bounce-back of equal magnitude in the first quarter of next year if the shutdown is resolved shortly.

To read the complete article please use the link below.

Title Insurers’ Margins

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