MORTGAGE BANKERS HAVE BEGUN to hit the point in the housing cycle that they didn't welcome, yet knew was coming: layoffs. Mortgage rates have finally headed north, leading to a drop of about 10 percent in mortgage purchase originations since April 2005—refinancings are down even more steeply—and, in many cases, lenders' earnings have fallen accordingly.

The reports of layoffs have been spotty. Through April, at least eight lenders in California notified the state's Employment Development Department of their intentions to lay off employees. Many of those reductions stem from mortgage giant Washington Mutual's February announcement that it would cut its workforce by 2,500 employees, or 19 percent, as it consolidates its network of loan processing offices from 26 to 16.

David Ritter, a securities analyst with Argus Research Corp., says the move should be taken in context of Washington Mutual's overall size. “They employ a lot of part-time help,” he explains. “They've looked out and said they're not going to have enough business to support that for some time.”

Times are worse at Orange, Calif.–based Ameriquest Mortgage, which announced in early May that it would close all of its retail branches and cut 3,800 jobs.

Mike Fratantoni, the Mortgage Bankers Association's senior director for single-family research and economics, says that employment is tracking mortgage data closely; both sets of figures began trailing off during November 2005. His group expects total mortgage volume (including both purchases and refinancings) of about $2.3 trillion this year, down from $2.8 trillion last year and close to $4 trillion at the peak in 2003. And although he says that there may be fewer reductions during this cycle than in the past due to a heavy reliance on technology, he adds, “This is no surprise. People have been anticipating this deceleration.”

Learn more about markets featured in this article: Los Angeles, CA.