A continuing absence of refinancing activity could have mortgage origination volumes off as much as 30% in 2014, say KBW's Bose George and Jade Rahmani, even as purchase volumes rise more than 10%. Their forecast of $1.15T in total activity next year is $50B less than the MBA's estimate, and against about $1.8T in 2013.
For the mortgage sector: Decline earnings from originators and title insurers, stability for the servicers, and increasing earnings for the insurers.
The mortgage insurers - RDN, MTG, ORI, ESNT, NMIH, GNW - will benefit not only from the rise in purchase activity, but from an FHA continuing to cede more market share to the private players.
The team is also bullish on owners of MSRs like Home Loan Servicing Solutions (HLSS) and New Residential (NRZ -0.3%), but neutral on Ocwen (OCN +0.7%) after a big run this year.
KBW also continues to believe the common stock of Fannie (FNMA -0.4%) and Freddie (FMCC +0.8%) is worthless and reform of the GSEs isn't coming until at least 2015.