Now come the layoffs.
With mortgage rates up 70 basis points in the past two months and loan volume dropping sharply, lenders are starting to cut staff in earnest.
Norwest Mortgage, the nation's largest lender, confirmed Thursday that it has closed two regional offices this year. And Accubanc Mortgage Corp. said it has laid off 215 people, or 12% of its work force, since the first quarter ended. These actions follow Countrywide Credit Industries' elimination of 5% of its production staff in February.
The industry is hoping staff reductions will be less severe than in 1994, when the last refinance boom ended. But a sharp drop in loan applications is forcing some lenders to take tough measures to protect their business.
"When we go through periods like this, you don't start cutting your costs on No. 2 pencils and paper clips," said William R. Starkey, chief executive officer at Accubanc in Dallas.
"Mortgage bankers have done a better job in recent days of leveraging technology for greater efficiency," reducing extreme fluctuations in staffing, said Mortgage Bankers Association executive vice president Paul Reid, "but not entirely."
The MBA reported Wednesday that its seasonally adjusted application index declined 2.5% last week, despite a surge in applications by homebuyers trying to lock in rates before they go any higher. The organization also reported that refinancings fell 11.2%.
Freddie Mac reported Thursday that the average 30-year, fixed-rate mortgage was at 7.51%-up 10 basis points in a week and the highest rate since August 1997, when it averaged 7.59%.
Brian Carey, an MBA economist, said the worst is yet to come.
"I expect a larger seasonally adjusted decline for this week and much larger drops in the weeks ahead," Mr. Carey said. "All this is leading up to the Fed (Federal Open Market Committee) meeting at the end of the month and a rate hike of anywhere from 25 to 50 basis points."
For Norwest, the job cuts were modest, given the size of its operation. The reductions affect 82 of its 16,000 employees.
The unit of Wells Fargo & Co. closed a call center in Fairborn, Ohio, in March, and on Tuesday closed a wholesale-lending office in Lake Oswego, Ore., a spokesman said.
The employees who lost their jobs are being considered for other positions under the company's "retain and retrain program," the spokesman said.
The closings are "part of our ongoing effort to create a more efficient organization," he said.
Chief executives attending the MBA's presidents' conference in Carlsbad, Calif., this week reported 15% to 25% decreases in application volume, Mr. Reid said. Layoffs are inevitable for most companies, he said.
Mr. Starkey of Accubanc said lenders usually have two responses to falling volumes: try to increase volume by lowering prices, or cut costs by cutting staff.
Mr. Starkey called lenders who take the first approach "crazies."
"It may increase their volume, but it's also going to cost them more money," he said. "They're not going to make as much, or any, profit."
The best way to adjust to leaner times, he said, is to cut costs-and personnel accounts for 60% to 75% of a mortgage company's expenses.
Rising rates and the end of the refinance boom mean that business will no longer walk in the door, and lenders will have to work harder and market aggressively to get deals.
"The last couple of years have been fairly easy," Mr. Starkey said. "Everyone out there was trying to do it. I hate to see volumes decline, but I welcome a weeding-out process."
On the bright side, the rise in rates has boosted the value of mortgage companies' servicing portfolios, because loans are now less likely to pay off early.
"Given we've done a number of large servicing acquisitions in the last three to four months, we're pretty happy with this environment," said Kevin D. Race, president and chief operating officer of HomeSide Lending in Jacksonville, Fla. "That will make those acquisitions perform better than we had anticipated."
Volume has not fallen for all lenders. At Washington Mutual Inc., year- to-date originations total $17.2 billion-up about 3% from the same period in 1998, said Craig Davis, executive vice president for mortgage banking at the Seattle thrift.
"Our market share tends to increase when rates rise because of our (adjustable-rate mortgage) product," Mr. Davis said. ARMs have accounted for 55% of Wamu's production year-to-date, up from 42% in the same period last year, he said.