Under the plan, the corporation’s Title Insurance and Specialty Insurance operations would become a separate entity known as First American Financial Corp. First American’s Information Solutions operations, which would consist primarily of the current Property Information and Mortgage Information segments, as well as First American’s 75 percent interest in First Advantage Corp., would remain at the existing holding company, to be renamed prior to the separation. The transaction, which the company said would be tax-free to shareholders, is expected to close in the third quarter. 

Parker Kennedy, chairman and CEO of First American, said he expected the spinoff to “unlock the unrealized value of our information businesses, while strengthening the competitive positions of both companies. After the separation, each company will have the financial strength and flexibility to implement its own unique growth strategies, allowing both organizations to refine and refocus their business mix. Because each company will have its own separate results and its own publicly traded stock, each company will also be in a better position to raise capital and align management and employee incentives with the interests of shareholders.”

Analysts called the plan a “long-term positive.” Keefe Bruyette & Woods analysts Geoffrey Dunn, Nathaniel Otis and William Clark said that while the companies face “headwinds” based on cyclical factors, the plan should improve the corporation’s viability.

“We have hoped to see a restructuring of the company's operations and view this decision as a material positive for shareholders, but would have to admit that this initiative is occurring sooner than we expected and is a more complete plan (another positive) than we thought management would be willing to entertain,” KB&W said. “While the headwinds facing the cyclical areas of FAF's businesses remain and this decision does not affect our 12-month valuation of the company, which is fundamentally based and done on a by-the-pieces approach, we believe that this decision is a very important and positive development for the long-term shareholders of FAF.”

KB&W said risks to First American maintaining its investment value remain, including a slowdown in real estate volumes, the potential for management to not control expenses as well as anticipated interest rate cycle changes and execution/integration risk of company acquisitions.

“The title operation, which still needs margin improvement but should be a strong cash flow generator over the course of a cycle, is now largely independent and can present more of a yield/share buyback entity for shareholders,” KB&W said. “The Information Services business, which we believe warrants materially higher valuation multiples and is an area still focused on acquisition expansion, will now be independent, not burdened by any common dividend payout, and potentially has a stronger equity currency with which to pursue additional acquisitions in the data analytics business.”

Once the transaction is complete, First American shareholders would own 100 percent of common equity in both the Financial Services and the Information Solutions companies. Plans call for both companies to trade on the New York Stock Exchange.

The Information Solutions company provides data and analytics products and services, organized into four reporting groups:

• Data & Analytic Solutions, to include the company’s real property data and analytics, mortgage risk analytics and title plant businesses;
• Origination Solutions, to include the company’s traditional appraisal, broker price opinions and national joint venture businesses;
• Servicing & Default Solutions, to include the company’s tax monitoring, flood zone determination and default-related businesses; and
• First Advantage, a market leading risk mitigation and business services provider, to be 75 percent-owned by the Information Solutions company.

The Financial Services entity would include the residential and commercial title operations, home warranty and homeowner insurance businesses and trust and banking services, including:

• Title Services: First American Title Insurance Co., First Canadian Title, First Title plc, United General Title and Pacific Northwest Title;
• Specialty Insurance: First American Specialty Insurance Co., First American Property and Casualty Insurance Co. and First American Home Buyers Protection Co.; and
• Trust and Banking: First American Trust FSB and First Security Thrift. 

Dennis Gilmore, First American’s current chief operating officer, will become CEO of the Financial Services operations; and Frank McMahon, First American’s current vice chairman and chief financial officer, will become CEO of the Information Solutions operations. Kennedy will become executive chairman of both companies.

First American’s board repurchase of $300 million of the company’s common shares comes in addition to the $60 million remaining on $500 million previously authorized. Additionally, the company received a financing commitment from Wells Fargo for a $200 million interim credit facility. Prior to the separation, the company expects to put in place separate credit facilities for both the Financial Services and the Information Solutions companies.
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The average contract interest rate for 30-year fixed-rate mortgages fell to 5.62 percent from 5.73 percent, with points decreasing to 0.94 from 1.10 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans. Since December 14, the 30-year rate has fallen by 56 basis points from 6.18 percent.

The average contract interest rate for 15-year fixed-rate mortgages decreased to 5.07 percent from 5.21 percent, with points decreasing to 1.09 from 1.18 (including the origination fee) for 80 percent LTV loans. The 15-year fixed rate has fallen by 71 basis points (from 5.78 percent) since December 14.

The average contract interest rate for one-year adjustable-rate mortgages decreased to 5.77 percent from 6.04 percent, with points increasing to 1.00 from 0.99 (including the origination fee) for 80 percent LTV loans. The one-year ARM has fallen by 71 basis points (from 6.48 percent) since December 14.

The Market Composite Index, led by refinance applications, surged to 906.4, an increase of 28.4 percent on a seasonally adjusted basis from 706.0 one week earlier. On an unadjusted basis, the Index increased by 64.8 percent compared with the previous week (which was shortened by the New Year’s holiday) and was up by 39.0 percent compared with the same week one year earlier. The four-week moving average for the seasonally adjusted Market Index rose by 10.1 percent to 687.5 from 624.4. 

The seasonally adjusted Refinance Index increased by 43.4 percent to 3575.5 from 2494.2 the previous holiday-shortened week. The four-week moving average rose by 18.2 percent to 2401.5 from 2031.0. The refinance share of mortgage activity increased to 62.7 percent of total applications from 57.7 percent the previous week.

The seasonally adjusted Purchase Index increased by 11.4 percent to 461.2 from 414.0 one week earlier. On an unadjusted basis, the Purchase Index increased by 45.2 percent to 365.7 from 251.8 the previous week. The four-week moving average increased by 2.5 percent to 407.6 from 397.9.

The seasonally adjusted Conventional Index increased by 28.6 percent to 1305.5 from 1015.3 the previous week; the seasonally adjusted Government Index increased by 26.7 percent to 241.2 from 190.4 the previous week.

The ARM share of activity decreased to 9.2 percent from 9.3 percent of total applications from the previous week.

The survey covers 50 percent of all U.S. retail residential mortgage originations, and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts.
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President George W. Bush signed TRIPRA into law on December 26. Now that TRIPRA has been enacted, MBA’s efforts will focus on implementation regulations at the federal level and actions by the National Association of Insurance Commissioners (NAIC) to introduce guidance—Model Bulletins—to state insurance regulators for the implementation of TRIPRA.

MBA intends the TRIA Implementation Resource Center web site to offer one-stop shopping for all facts on TRIPRA and its implementation. It provides information on TRIPRA that is publicly available—including TRIPRA legislation and the summary of the legislation; federal and state implementation guidance; and pending study efforts.

“In order to better serve our members, MBA created the TRIPRA Implementation Center to provide a one-stop resource for a comprehensive understanding of TRIPRA as well as a regularly updated source for the latest federal regulatory agency implementation regulations and NAIC implementation guidance for state insurance agencies,” said Jan Sternin, senior vice president of commercial/multifamily at MBA.

Click here to visit MBA’s TRIA Implementation web site.
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Field valuators—usually real estate appraisers or brokers--could receive timely requests for valuations using .NET technology, allowing clients to access their orders in real time. Once the valuation is completed, the appraiser could upload the report to InsideValuation’s website for customer retrieval. The technology could reduce a 14-day process to five days on average, Bates said.
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The Mortgage Bankers Association/STRATMOR Peer Group Program provides mortgage companies with a standard for comparing their current state of production and servicing businesses, in relation to themselves (in previous and future years), as well as in relation to peers.

MBA (www.mortgagebankers.org) and STRATMOR Group (www.stratmorgroup.com) have conducted this semi-annual peer group benchmarking program since 1999. The program is well-regarded not only for its detailed benchmarking outputs and summary presentation but for its 1.5-day roundtable meetings. The meetings, organized by peer grouping, allow companies to network and share ideas and issues with peers.

For each peer group meeting, the MBA/STRATMOR team compiles a detailed presentation of historical trends and analyses of the most current data series. Participating companies consistently tell us that they derive unparalleled value from the dialogue at our roundtable meetings, which are an integral part of the program.

If you would like to participate in MBA’s upcoming Spring 2008 peer group survey (data as of December 31, 2007) or need additional information, please contact either Marina Walsh, director in MBA’s research and economics division, at 202/557-2817 or mwalsh@mortgagebankers.org; or Jim Cameron of STRATMOR Group at 770/632-4445 or jim.cameron@stratmorgroup.com.
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This conference provides important information regarding recent initiatives such as FHASecure, upcoming Mortgagee Letters, legislative updates and implementation and timing for the proposed FHA modernization bill and includes opportunities for questions and answers throughout.

The LIVE Online Conference interactive format, powered by CampusMBA, the education arm of MBA, enables participants to easily view presentations, download articles and analyses and interact with FHA and MBA representatives through their desktop or laptop computers. Participants receive one half point toward their CMB designation. To participate in this convenient and inexpensive format you simply need a computer with an Internet connection and a phone.

If you are interested in participating in this LIVE Online Conference, please register at http://www.campusmba.org/products/default.aspx?product_code=E2801716I/REGIS. The fee is $49.99 for MBA members and $99.99 for nonmembers.

For additional information, please visit www.campusmba.org.
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Combining information with business processes, SOA packages both data and process aspects of business, assigning definitions and provisions within a defined IT infrastructure. In this process, different applications have the ability to exchange data and participate in business processes that otherwise might have been disconnected—information and processes existing among different operating systems coded in various programming languages. SOA creates customized standards for information and processes to communicate and operate efficiently.

“SOA enables IT to more effectively align with the business because it changes the way IT delivers the solutions. The self-contained nature of Services and the standard connectivity empowers IT to rapidly compose solutions by reusing existing Services, resulting in faster time-to-benefit compared to traditional ways of developing, modifying and integrating conventional, monolithic software applications,” said Tony Baer, associate analyst at Baltimore-based ZapThink and author ofSOA: Building the Roadmap.

In implementing SOA, an incremental and iterative approach could yield longer-term benefits, giving companies time and the ability to evaluate the process. The uniqueness of SOA lies in its scalability, allowing companies to gauge how involved they would like to be in its adoption. Business readiness is a key component for companies to address—assessing whether they have the circumstances and requirements that SOA could address. Additionally, companies should consider the question of infrastructure readiness—determining which business assets could be handled as Services. Organizationally, companies also require the appropriate skills to implement SOA, either in-house or through an outsourced option.

With the goal to ultimately optimize business and build efficiency, governance issues are also of great importance, especially to guide the implementation and later on, the livelihood of the architecture.

“Consequences could include barriers to reuse [information] where lack of architectural standards governing Service creation reduces the likelihood of reuse. Furthermore, when organizations don’t apply security policies governing authentication, authorization and access uniformly, breaches and compliance violations grow,” Baer said. "Consequently, governance is necessary for ensuring that when the organization exposes a Service in a new scenario that might serve as a different class of user, that the new usage won’t violate corporate policies for confidentiality or privacy.”

Companies should evaluate who their consumers are and what Services they currently use, the report said. Additionally, they need to determine access guidelines in order to pose limitations on which consumers are entitled to which Service. The critical and important security and risk concerns also surface in the SOA migration; companies have the burden of ensuring authorization processes as well as facilitating and following risk management principles.

SOA, though scalable, could initially overwhelm companies. Its acceptance among senior management could pose hurdles in some comapnies, especially when they are in the process of working through the more difficult aspects of architecture and modeling, Baer said. A pilot project could alleviate some of the pressure in launching an SOA initiative and is also a strategic means to familiarize technical teams with SOA; and to further define methodologies and approaches in implementation.

“The goal of the pilot is to gain experience while mitigating the risks. However, while delivering a meaningful business result is important, the primary goal of an SOA pilot isn’t delivering functionality. It’s all about proving the feasibility of the architecture,” Baer said.

In drawing the SOA roadmap, companies determine critical processes within the business and processes with external business partners that could be Service-enabled. The companies then seek to combine, modify or recombine processes immediately, more efficiently than trying to develop or purchase new software, or install new platforms altogether.

“You should design services to evolve over time. Define the lifecycle, along with the processes you use for managing Services, from requirements definition through development, deployment, versioning, modification, reuse and retirement. In many ways, the Service lifecycle has parallels with the software application lifecycle,” Baer said, emphasizing the awareness of Services and their definite lifecycle.

From a human capital perspective, the correct talent is also essential in SOA implementation and management—both in terms of developers and architects. Prior to foraying into actual architecture and developing SOA, business analysts who have a broad sense of needs of the organization and who can translate them into IT-speak are also important—setting the strategic plan in place.

Examples of business goals and information ‘bottlenecks’ that could be simplified through SOA include challenges posed by legacy systems. An estimated 70 percent of the world’s data resides in legacy systems—data needing integration through an infrastructure that brings it into business processes without re-coding. Similarly, a company could also want to create accessibility to information that exists in various data centers—to create views of data from multiple sources that could be used and reused in business processes.

From a process perspective, SOA could involve rationalizing and integrating business processes altogether—merging human work flows with existing processes. For example, a financial institution could automate payment processing for commercial customers by exposing processes automatically to convert customer file formats, then route them to appropriate target systems and then track process execution.

“SOA is not an all-or-nothing project. Your organization can adopt an incremental approach to implementing SOA as it targets specific benefits, applies the lessons learned to create and communicate best practices as it manages the Service life cycle and adds new Services, expanding their footprint throughout the organization,” Baer said.
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