Falling refinancing applications took a huge bite out of the mortgage industry's production pipeline in 2013.

The mortgage market declined 30% from a year ago and is estimated to close approximately $1 trillion in loans in 2013, significantly down from $1.5 trillion in 2012, said Jeff Taylor, managing partner at DigitalRisk.

"The major change in lending practices (which is likely to be short lived) has been the tremendous tightening of credit standards by Fannie Mae and Freddie Mac. However, there is mounting pressure to relax standards to boost loan volume," Taylor said.

But it's not all bad news.

As HousingWire previously reported, the Census Bureau reported that the sale of new single-family housing in October 2013 reached an annualized rate of 444,000 units, up 25.4% from September’s rate of 354,000 units.

However, Taylor noted, "On the not-so-good side, declining incomes and net worth among the middle class has left the new home environment to higher income/net worth applicants who can afford the down payment (20%+) and also qualify for the loan."

Meanwhile, as the new year approaches, the market is slowly shifting into a purchase-driven market.

Tommy Duncan, CEO of Quality Mortgage Services, recently noted to HousingWire that since there may be a shift in risk and eligibility validations as the market moves into a dominant purchase and first-time-homebuyer market, people should closely watch income, employment, and complex tax returns.

"While fraud is still relevant, the bigger-picture issue is manufacturing defects, which include such events as property valuation errors, income misstatements, asset/liability error and occupancy issues, to name a few," Taylor explained.  

"The quality of U.S. mortgages with respect to manufacturing defects is much worse than many expected," Taylor added.

While 2013 proved to include a few shifts, 2014 brings a new set of changes, including a new set of lending regulations and compliance rules for banks to adapt to.