In the latest instance of a company preparing for a time when the bundling of real estate settlement services is commonplace, LandAmerica Financial Group Inc. announced two acquisition deals on Tuesday.
The Richmond, Va., provider of title insurance and other real estate settlement services said Tuesday that it agreed to pay $210 million in cash for Lereta Corp. of Covina, Calif., and bought Info1 Holding Co. Inc. of Atlanta for $47 million.
In a conference call Tuesday morning, LandAmerica executives cited bundling opportunities as a major reason for the deals. Lereta is the third-largest provider of real estate tax services, and Info1 is the fourth-largest independent pro-vider of credit reports, the executives said.
LandAmerica has packaged mortgage settlement services in the past, but the deals would enable it do so without relying on outside providers for some of the services. That ability, which would be particularly helpful if proposed regulatory changes go through, would help it keep up with competitors that have already broadened their menus.
"These two transactions give us much better flexibility in controlling the bundling," Charles M. Foster Jr., LandAmerica's chairman and chief executive, said on the call. "We will now be able to provide the entire package with our own providers."
The Department of Housing and Urban Development last year proposed reforms to its enforcement of the Real Estate Settlement Procedures Act that would encourage lenders to bundle settlement services. Lenders would get a safe harbor from the law's anti-kickback provisions if they guarantee a single price up-front for the services.
But because of an outcry from service providers and small lenders that felt threatened, HUD is said to be considering a compromise in which lenders would split the package into two pieces.
Washington lobbyists expect the department to either publish a final rule or submit a revised proposal by next month, though many had expected it to do so by now.
Any change could give an advantage to companies that can provide cheap packages to lenders or their customers.
"Title insurance is a regulated product, so it's unlikely you would use that to provide any discount in the pricing," William Evans, LandAmerica's chief financial officer, said in an interview. That is why title companies would need to be able to provide services that can be discounted, he said.
Ann vom Eigen, the legislative and regulatory counsel for the American Land Title Association in Washington, said many title insurers already bundle settlement services. "A lot of our members, such as First American [Corp.] and Fidelity National [Financial Inc.], have also provided" tax, flood, credit-reporting and other services.
Even if all of the services and products needed to close a loan are not available in-house, providers will turn to outside providers "to make the lender's and customer's life easier," she said.
In its past bundling efforts, LandAmerica offered a package with Loreta tax services. In that arrangement, Mr. Evans said his company received "a very thin slice of the revenue stream for our sales and marketing costs."
The deal for Lereta, which also provides flood hazard certification, is expected to close this month, pending regulatory approval. The Info1 purchase closed Sunday.
James Kletke, a senior vice president and chief underwriting counsel for Stewart Title Guaranty Co. of Houston, said the Stewart Information Services Corp. unit already provides a full range of services in-house.
"I think that if you're a title insurance underwriter and you want to be able to compete when and if a HUD proposal comes out ... it behooves you to have these things in place," he said. "It allows you to become part of the process."
LandAmerica says that even if HUD does not modify the settlement law, the two deals announced on Tuesday make sense, because of existing bundling opportunities, the diversification these companies would provide, and the profitability of their businesses.
"While clearly we do have Respa reform and bundling in mind with these two acquisitions ... we would want them as part of the family, regardless of the outcome of Respa reform," Mr. Evans said.
LandAmerica executives said they expect the acquisitions to increase its earnings next year by 5% to 7%. It currently derives 95% of its revenue from title-related business lines, but it hopes to reduce that percentage to 75% to 80% within five years.
However, the fact that LandAmerica wants to diversify "does not mean we will not continue to look for other opportunities on the title side," Mr. Evans said.
In July it bought Ten Mile Title Inc., a title agency with offices in Breckenridge and Dillon, Colo. It might buy other title firms in Colorado and in California, Mr. Evans said.
