Title companies scaling down as real estate cools off.

Is the title industry ready for a shakeout?

After years of growth that paralleled the boom in the region's real estate market, title insurers look to be facing a leaner year in 2006 that might not be pretty.

Consider LandAmeriea Lawyers Title.

The Burbank-based firm added to its employee base as the housing market went into its frenzy, but it's been a different story recently as it has cut back on both permanent and temporary staff. (LandAmerica is No. 14 on the Business Journal's list of largest Los Angeles County title companis. The list begins on the following page).

"We've released our temporary employees and let attrition take care of the rest by not rehiring for those positions," acknowledged Sid Phair, regional manager.

Title insurers, who insure property buyers from disputes over the validity of land titles have seen an unprecedented increase in the number of titles insured over the past five years, at the same time land values in the sprawling expanse of the greater metropolitan L.A. area have skyrocketed.

The total mortgage value of titles insured in the county has increased by 450 percent, to $236 billion in 2005 from $53 billion in 2001, according to data collected by Dataquick Information Systems. Refinancing has played the biggest part, with homeowners refinancing 510,095 loans totaling $156 billion in 2005, compared with 116,055 mortgages totaling $22 billion in 2001.

That has meant a big rise in title industry income on two fronts: from the pure increase in insured titles, as well as a rise in the value of each title policy. Title companies, like other insurers, charge a sliding fee based on the total value of the insurance. Currently, it costs about $6,000 to insure the title of a $500,000 home, slightly below the county median.

It also has meant a rise in the number of firms.

"In 1971, there were only a few title insurers locally. Now there are more companies that there ever were," said Cindy Fried, president of the L.A. and Ventura region for Fidelity National Title, the region's No. 1 title insurer.

In 2006, however, rising interest rates and a slowdown in the real estate market is expected to shrink the industry.

The Mortgage Bankers Association predicts 25 percent fewer refinance loans nationwide in 2006. Some local companies besides LandAmerica already have noticed a drop and have started to reduce the number of employees in their local offices.

Any shakeout would disproportionately affect the Tri-Cities area, and especially the city of Glendale, which is the center of L.A. County's title insurance industry.

It is home to eight of the 13 largest title insurers in the county as well as numerous smaller companies. Another three rifle insurers have local headquarters in neighboring cities Burbank and Pasadena.

The industry was originally located within the confines of the city of Los Angeles, but a combination of factors caused rifle insurers to relocate to the Burbank-Glendale-Pasadena area in the 1980s.

"Originally, title companies moved out of the city of L.A. into the Tri-cities area to get away from the corporate tax that the city of L.A. placed on them," said Nick Pappas, division president of Glendale-based Stewart Title. "The city would tax you on gross revenues even though most gross revenues were not a result of properties you were insuring within city boundaries."

Rather than pay a disproportionate amount of tax to Los Angeles, rifle insurers looked at more business-friendly communities while remaining within reasonable proximity to the county's Hall of Records, located in downtown L.A. The result was an exodus of insurers to Glendale, an area with lower business taxes and rental rates and easy freeway access to the downtown.

Furthermore, institutions complementary to title insurers such as banks and insurance companies had relocated to Glendale from their Wilshire Boulevard headquarters during the same time period. (The Hall of Records subsequently moved to Norwalk, but "there is no impetus to move closer to Norwalk," Pappas said.)

"For Glendale, title insurers create a source of employment that provides good paying jobs," said Dave Ahem, Glendale's economic development manager.

The area's talent pool serves as both an advantage and disadvantage for title insurers who have needed to hire more people as the demand for title insurance has increased. "With everybody so close, it's easier to attract people to come across the street or one city over to come and work, but people can get recruited away just as much as we have the ability to recruit," Pappas said.

Another big change in the industry has been technology.

The image documents for L.A. County dating back to 1984 are now available electronically. Insurers who used to have large offices at county buildings that house historical documents have been able to cut back on the employees there. However, insurers still need to have some staff there to pull older documents that are available only on microfilm.