The Mortgage Bankers Association is warning it expects to see $1.3 trillion in mortgage originations during 2013. This is down more than 25% from its revised estimation of $1.7 trillion in 2012.

Refinancings will retain the lion's share of mortgage origination, but will also experience the slowdown.

Refinances are expected to fall to $785 billion in 2013, down from a revised estimate of $1.2 trillion in 2012.

On the other hand, the MBA expects to see purchase originations climb to $585 billion in 2013, up from a revised estimate of $503 billion for 2012. 

Jay Brinkmann, MBA Chief Economist remarked: "We expect 2013 refinance originations to play out like our original expectations for 2012, with a long tail of refis extending through the first half of the year followed by a rapid drop-off in the second half."

Brinkmann continued to add that the increase in purchase volumes will be driven by continued modest growth in the economy, an increase in owner-occupied sales financed with mortgages as opposed to cash purchases by investors, an increase in new home sales and a small increase in average home prices.
“Mortgage rates are likely to stay below 4% through the middle of 2013, principally due to the announced ongoing purchases of mortgage-backed securities by the Federal Reserve under its QE3 program," Brinkmann said. 

The Fed is committed to buying $40 billion of agency MBS per month. The MBA estimates this means the Fed will buy 36% of all mortgages originated in 2013. Unless the Fed shift to Treasury purchases at the latter end of next year, the purchase will continue, pushing 50% near the end of 2013.

The MBA predicts growth to the overall economy, albeit at a very modest level. Threats to the mortgage financing market will likely continue in the near term.
“While the fiscal cliff is the most immediate threat, it is at least one we can control," Brinkmann said.

"The others are primarily international and pose longer-term headwinds for the US economy," he adds. "These include the ongoing economic slowdown in the European economies and how the fiscal problems in southern Europe will be resolved; the slowdown in growth in China and the cascading impacts on Japan, Taiwan, Australia, New Zealand and the countries of southeast Asia; and the prospects of a war involving Iran and Israel and the response of the other countries in the Middle East and the impact on world oil prices."