Douglas Pawlowski, director, Fitch Ratings, said, "It is likely that heavy order flow from 2002 will cushion the expected 28 percent decline in mortgage originations, leading Fitch to project a 10 percent to 12 percent decline in statutory net operating revenue for 2003.

"Although a decrease in revenue of this magnitude sounds drastic," Mr. Pawlowski noted, "it would still produce the second best revenue year in industry history."

Favorable results were driven by a second consecutive year of heavy refinancing volume where an estimated 58 percent of mortgage originations were refinancings. Fixed 30-year mortgage rates have steadily fallen from approximately seven percent during the first quarter of 2002 to just below six percent in December 2002, Fitch said.

The rating title stocks, Fitch said, outperformed not only the broad stock market, but the financial sector as well. On average, title insurance stocks gained 22.2 percent during 2002, compared to a

loss in the S&P 500 index of 21.2 percent.

Financial services sector stocks, which includes title insurers, lost 12.2 percent during 2002 measured by the NYSE Financial Index. In spite of superior performance in 2002, title stocks continued to trade at significantly lower multiples than other financial service institutions, Fitch said.

The ratings concern said the real estate market was "one of the few bright spots in an otherwise shaky U.S. economy."

Fitch said investors, wearied by several years of stock market deterioration, sought refuge in real estate, which has a history of greater stability. Fitch noted that housing starts have been robust all year and are forecast by The Mortgage Bankers Association of America to reach a record 1.7 million for the full year 2002.

However, Fitch noted that MBA forecasts for the real estate market in 2003 are mixed. MBA is predicting that housing starts, existing home sales and new home sales will be lower by three to five percent from 2002 levels, which remains strong relative to historical norms.

MBA also forecasts prices for both existing and new homes to increase by nearly five percent and two percent, respectively in 2003. Fitch said, however, it should be noted that housing markets are regionally fragmented and the predicted appreciation could represent areas that missed the large increases the last several

years.

Given the economic environment and current low interest rate environment, Fitch said it is expecting interest rates to remain flat in 2003, significantly reducing the refinancing share of mortgage originations. As evidence for this view point, Fitch pointed to the most recent one-half percentage point reduction in the Fed Funds Rate taken in November 2002, which the company said did not produce the same impact on mortgage rates as the Fed rate actions taken in 2001.

As a consequence, Fitch said, the refinancing activity that has fueled industry growth over the past couple years is expected to slow during 2003.

Fitch said it believes the title industry in aggregate is well capitalized, though there remain significant disparities in capital strength among individual companies. Policyholders' surplus grew by more than 14 percent from year-end 2001 for title insurers in Fitch's rating universe.

Fitch said although the title industry showed tremendous growth in profits retained during the year, greater expense leverage will boost required surplus, resulting in little change in the 2002 industry Risk-Adjusted Capital ratio.

Fitch's review and outlook report titled "Review and Outlook: 2002-2003" is available through Fitch's Web site, www.fitchratings.com, or the Ratings Desk at 1 (800) 893-4824.