By Jonathan Stempel
NEW YORK (Reuters) - The shares of major U.S. title insurers tumbled on signs the nation's housing crisis will lead both to higher claims and to reduced demand for insurance that homeowners need to protect themselves and their lenders.
Thursday's decline came a day after Fidelity National Financial Inc
Title insurance guarantees that property owners have title to property and can legally transfer that title. Many lenders require that buyers have the insurance before extending loans.
Yet a housing slump worsened by tight credit and a weakening economy has resulted in lower demand for homes, cutting into title insurers' revenue.
"Fidelity National took a big reserve charge and because it is a national company, there might be an assumption that others might follow," said Paul Bauer, a senior analyst at Moody's Investors Service.
"Title losses may also be coming into the system faster than they would have because of stress in the real estate market. Also, with homeowners already in stressed situations because of falling prices or rising interest rates, they might look to their own title insurers if they think something might be wrong with the original title."
In afternoon trading, Fidelity National shares were down about 14 percent at $7.76.
Among rivals that have yet to release quarterly results, First American Corp
None immediately returned calls seeking comment.
MORTGAGE FRAUD RISING
On a conference call, Fidelity National said it soon plans to increase title insurance prices 10 percent to 20 percent nationwide to help offset lower business and rising reserves.
The Jacksonville, Florida-based company's third-quarter net loss was $198.3 million, or 95 cents per share. It said claims are rising in part because of increases in fraud and forgery, which now account for about 20 percent of claims.
Fidelity National is not alone. James Wells, chief executive of Atlanta-based SunTrust Banks Inc
Quarterly profit at SunTrust fell 26 percent.
New evidence shows a steepening housing slump. U.S. home prices in August dropped 5.9 percent from a year earlier according to the Federal Housing Finance Agency, the largest decline since data were collected in 1991.
And data provider RealtyTrac said U.S. foreclosure filings rose 71 percent in the third quarter to a record 765,558. About 44 percent of filings were in just two states: California and Florida.
Moody's Bauer said rising foreclosures might actually help title insurers if it spurs increased buying.
"Title insurers are much more dependent on transactions taking place than on the prices of homes," he said.
First American is based in Santa Ana, California. LandAmerica in Glen Allen, Virginia and Stewart in Houston.
(Editing by Andre Grenon)
