Despite a rough start this year for mortgages, two major research and analysis firms are bullish on mortgage banking despite diminished expectations for overall volumes in 2014. Bullish, that is, in an environment of super-bears.

In a note to clients, KBW Research says that they expect for modestly stronger mortgage origination volumes in the second quarter of 2014 versus the first quarter, although still down meaningfully year-over-year.

“We are making modest alterations to our estimates based on the early read-across from other mortgage banking results, as well as reported data for the title insurers. We are also cutting our estimates for servicers to build in somewhat higher costs,” the report says. “We estimate that 2Q14 mortgage volume will come in at roughly $275 billion. This is in line with the Mortgage Bankers Association, although it is lower than Fannie Mae and Freddie Mac estimates."

Earlier this month, Fannie Mae said it believes the housing recovery is on pause for 2014. 

“Despite recent improvement, we now expect an annual decline in existing home sales due to weak volume in the first four months of the year associated with the rise in mortgage rates mid-last year and the current dearth of supply of lower-priced homes,” said Doug Duncan, senior vice president and chief economist at Fannie Mae.

“While the MBA mortgage applications index is up an average of roughly 2% from 1Q, it was up by closer to 15% [quarter-over-quarter] for the period from mid-February to mid-May, which should drive 2Q14 closings,” KBW concludes.

FBR Capital Markets, meanwhile, says in a note to clients that they expect originations likely to come in between $265 billion and $310 billion. 

“Based on preliminary data from the initial wave of banks, we believe 2Q14 originations will most likely come in between” industry estimates, the note states. “We continue to believe the industry will struggle to reach the $1.1 trillion to $1.2 trillion estimate companies sized to at the start of the year and as such generally recommend investors shy away from origination-focused names in the near term.”

KBW Research also forecasts a roughly 15% increase in industry mortgage volume, but they note that they are assuming somewhat higher levels of growth for some of the companies they track.

“We believe that decline in industry volumes has disproportionately hurt the larger lenders that have a higher percentage of refinance activity. Also, some of or our companies, such as Stonegate, are meaningfully growing market share through acquisition,” the report says.

As for mortgage servicers, KBW is down on mortgage servicers.

We are reducing our EPS estimates for the mortgage servicers mainly driven by an increase in operating expenses in order to incorporate higher servicing costs. We are also trimming our acquisition estimates for the servicers in 2Q since we had been assuming some acquisition volume, albeit modest. We are not adjusting our mortgage banking estimates for servicers materially,” KBW reports. “We are also cutting our estimates for servicers to build in somewhat higher costs.”