Residential mortgage refinances are expected to deteriorate over the next two years due to factors not limited to rising interest rates. Some are predicting that mortgage refinancings, in fact, will fall by 77% by 2012 and drag down the overall market for originations. Total refinances hit about $1 trillion in 2010 and accounted for 69% of the market share for originations, according to the Mortgage Bankers Association. The trade association is predicting that will drop more than two-thirds to just $352 billion and comprise of 36% market share in 2011. MBA anticipates only $236 billion worth of refinances to take place in 2012. Mortgage purchases will not make up for the losses in the refinance sector, according to the firm's numbers. Purchase originations are expected to increase to $614 billion from $473 billion in 2011 (up 30%), bringing the total originations for the year to $966 billion. In 2010, origination transactions summed $1.5 trillion, which means a nearly 36% drop in overall residential lending activity. MBA Senior Vice President and Chief Economist Jay Brinkmann said rising mortgage rates will filter the market for refinances, and that repurchase requests from Fannie Mae, Freddie Mac and mortgage insurers will also impact the market. "This will continue to hold down originations," he said. The MBA forecasts new home sales will rise and existing home sales will fall, up to 351,000 and down to 4.8 million, respectively. Financial services firm KBW reported a 17.5% increase in new home sales from November to December, putting the 2010 year-end total at 329,000. December new home sales, which totaled about 22,000, were down 7.6% compared to a year earlier. KBW said the average monthly sale volume for 2010 was between 20,000 and 26,000. "Assuming the absolute level of monthly sales remains near current levels in the near term, the annualized new home sales numbers should continue to improve on seasonal factors in coming months," the firm said. Write to Christine Ricciardi. Follow her on Twitter @HWnewbieCR.