Sept. 4 (Bloomberg) -- First American Corp., the largest U.S. title insurer, said it would eliminate 1,300 jobs this quarter, or about 3 percent of its workforce, as a slowdown in the U.S. housing market crimps sales.

Combined with 600 jobs it cut in the second quarter, First American expects to lower expenses by $108 million a year, the Santa Ana, California-based company said in a statement today. The company suspended salary increases and stopped hiring on Sept. 1 and has identified at least 40 branches that may close, said Chief Financial Officer Frank McMahon at a conference in New York.

First American is increasing the pace of job cuts as defaults by borrowers of subprime mortgages threaten to cool the U.S. housing market further. Sales of previously owned homes in the U.S. fell in July for a fifth consecutive month, reducing demand for title insurance, which protects homebuyers from claims against their ownership of a property. The coverage is required by most banks before agreeing to issue a mortgage.

``If it gets worse from here, the steps we've taken so far will not be sufficient,'' McMahon said. Orders for title insurance in August were 5 to 15 percent lower than a year ago, he said.

Revenue at First American and other title insurers will fall through at least the first quarter of 2008, said Robert Napoli, a Chicago-based analyst at Piper Jaffray Cos., who rates First American and second-ranked Fidelity National Financial Inc. ``market perform.''

`Very Tough Environment'

``It's a recognition that the very tough environment got tougher over the last month,'' Napoli said of the job cuts.

LandAmerica Financial Group Inc., the third-biggest title insurer, said on Aug. 28 that it would shrink its staff by 1,100 in the second half of the year.

First American shares fell 43 cents to $41.40 in New York Stock Exchange composite trading today. Shares have gained 2 percent in the past 12 months.

Severance costs related to the job cuts won't be material to earnings, McMahon said in an interview after the presentation.

First American boosted its employee roster by 76 percent in the five years ended Dec. 31, to 39,670 from 22,597, as the housing market boomed. New and existing homes sold at an annual rate of 6.62 million in July after exceeding 7 million each July for the previous four years, according to industry and government figures.

Slower home sales and rising defaults in the second quarter contributed to a surprise net loss of $66 million, or 68 cents a share, First American said on Aug. 2. Napoli had expected net income of 94 cents a share.

Revenue Declines

Revenue fell, hurt by fewer mortgage originations, and claims rose as defaults and foreclosures led to title searches that unearthed ownership disputes. Curt Johnson, president of the company's title insurance unit, said on Aug. 2 that he expected annual title insurance revenue of $5.7 billion to $5.8 billion, compared with the $6 billion the company forecast in March.

Title insurance contributed 71 percent, or $1.48 billion, of second-quarter operating revenue. First American's other units sell property insurance, home warranties, and real estate data. Through its First Advantage Corp. subsidiary, it also conducts employee background screenings and sells credit reports on subprime borrowers.

First American was the largest title insurer by sales in the second quarter, according to the Washington, D.C.-based American Land Title Association, followed by Jacksonville, Florida-based Fidelity National and Richmond, Virginia-based LandAmerica.

To contact the reporter on this story: Zachary R. Mider in New York at zmider1@bloomberg.net

Last Updated: September 4, 2007 17:36 EDT