The coming new year presents its share of uncertainty, but a lackluster performance from mortgage originations might be in store for 2013, as forecasted in a recent report from Keefe, Bruyette & Woods (KBW).

Though KWB expects mortgage origination activity to remain strong in 2013, the New York-based investment banking firm predicts a decline to $1.54 trillion, down from $1.7 trillion in 2012.

KBW’s forecast is in line with other industry sources’ predictions. The Mortgage Bankers Association currently predicts 2013 volume of $1.3 trillion, and Fannie Mae has predicted a $1.5 trillion estimation. 

KBW also expects mortgage credit trends to continue improving, despite a possible increase in Federal Housing Administration (FHA) delinquency rates. Mortgage credit costs, KBW notes, will continue to be driven by rep and warranty expenses, primarily on government-sponsored enterprise (GSE) loans. 

Additionally, KBW also forecasts returns on mortgage investments to contract year-over-year.

KBW does not expect major mortgage market reform through Congress in 2013, but they do expect the Federal Housing Finance Agency (FHFA) to continue making changes at the regulatory level, inducing the raising of guarantee fees. 

Written by Jason Oliva