A new report on title insurers by a financial services firmprojects that 2009 will see a $1.8 trillion mortgage market--down1.3 percent from last year.

New York-based Keefe, Bruyette & Woods said its estimateinvolves a cautious approach as to whether mortgage applicationlevels actually translate into higher closed volumes given currentunderwriting standards and credit availability.

The firm's report said rate cuts and other actions from the Feddriving down mortgage rates have unleashed "a significant rise inapplications," and government action creates the possibility "forthe 2009 origination market to end up being better than previouslyenvisioned."

The KBW analysts said they believe the title insurers havesignificantly reduced their overall expense bases, both from apersonnel standpoint and with respect to other operating expenses,and now enter 2009 better equipped than in the past to manage lowerorigination volumes.

Increasing volumes as the year progresses, according to KBW,should help title insurers leverage their reduced cost bases eventhough the firm believes volumes will remain at the lower end ofrecent annual trends.

KBW said a potential wild card for title insurers in 2009 istitle loss provisioning, noting that over the last two years, theindustry has experienced elevated loss levels associated with theweakening economy, increasing foreclosures and elevated fraudlevels.

The report said there is a concern over increasing commerciallosses, which should be monitored for "accelerating deteriorationgiven the higher severity of commercial losses."

KBW said it does not foresee much merger activity since theChapter 11 sale of LandAmerica's underwriting capacity(Commonwealth Land Title and Lawyers Title) to FidelityNational.

According to the analysis, other players have an interest inconsolidation at this time and with over 45 percent of the marketfollowing the LandAmerica deal, it is extremely unlikely thatFidelity National would or could pursue another transaction of anymeaningful size.