2012 was a great year for homebuyers. Mortgage rates dropped lower than ever, and the national real estate market finally turned the corner. Things are looking up.

But this year could bring some big changes. According to mortgage expert John Settles, buyers need to be keenly aware of current opportunities and both the positive and negative swings that could come as we wade into 2013.

UrbanTurf asked Settles a few key questions about what this year could mean for mortgages. Here’s our conversation.

UT: What effect do you think the fiscal deal will have on buying or selling a home in 2013?

JS: Because it is a temporary deal that does not address spending or prevent sequestration (automatic spending cutbacks), I think interest rates over the next 2-3 months could be extremely volatile. There is also risk that any forthcoming spending cuts and deficit reduction plans could affect buyers’ ability to deduct mortgage interest at tax time.

The silver lining to these potentially negative consequences is that if the country slips back into recession, breeding more economic uncertainty, mortgage rates would likely sink still lower.

UT: Anything else the government is doing that will affect the mortgage market this year?

JS: The Consumer Financial Protection Bureau has proposed a few new rules for the mortgage servicing industry. These rules would protect homeowners from unnecessary surprises from mortgage collectors. For instance, under the new rules servicers would need to give homeowners in danger of foreclosure a greater support system, including greater access to staff and allowing for the suspension of foreclosure proceedings if the homeowner is applying for loan modification. If accepted, we’d see these rules go into effect during this first quarter. In the meantime, though, the uncertainty of these new regulations could potentially tighten lending guidelines and make it harder for borrowers to qualify for mortgages.

UT: What about the European situation in Greece, Spain, etc.?

JS: If Europe’s financial crisis deepens, our mortgage market would get stronger and rates would drop, but the real estate market could weaken tremendously, as it did five years ago. One thing to recognize is that for the past few years mortgage rates have tracked macroeconomic strength – the lower the rates, the weaker it suggests the economy is. So while it is good for buyers that rates remain low, it probably means the economic climate hasn’t improved much. Buyers must evaluate for themselves whether they prefer low rates but a shaky economy, or higher rates but an improving economy. It all depends on their individual circumstances.

UT: Lastly, do you think rates will fall below 3 percent?

JS: Rates would only crack the 3.0 barrier if the overall macroeconomic picture worsened considerably, and that would require a few negative things coinciding, such as going over the fiscal cliff, falling back into recession, and a sovereign default in Europe. Remember, if you’re a buyer you like seeing low rates. However, none of us should be rooting for rates below 3 because it would indicate a pretty bleak economic picture for 2013 and 2014.

That said, if the economic situation continues steadily improving, rates will probably stay under 4 percent for another year, max two.

Have additional questions about mortgages? Contact Wells Fargo or John Settles (NMLS448870) by phone at 202-216-5700. Or request a consultation by visiting the Wells Fargo website here.