The bad news only gets worse for the mortgage industry.

Staff reductions are on the rise and there is no immediate relief in sight. Most of those already laid off were part-time and temporary employees, but full-time staffers may not escape downsizing for long.

At the few companies where staffing requirements may have grown, the needs are likely to be met through internal shifting or the use of temporary workers.

David Lereah, chief economist at the Mortgage Bankers Association, said employment declined 11% in the last six months. He expects the trend to continue for 18 more months.

"This mirrors what happened in 1987," he said, "with the refi boom followed by rising rates." In the first six months after the height of employment in 1987, employment decreased 11%.

"Eventually, in 1987, employment fell 20% by the end of two years," Mr. Lereah said. "I suspect it will be a little worse this time because business volume has gone down more." By the trend's conclusion, he expects employment to be down 25% to 30%.

Automation, he said, has helped companies keep their staffs thin. Otherwise, layoffs would have been much higher.

Northern Trust Co., Chicago, avoided staff cutbacks by hiring temporary employees when business was booming in 1992 and 1993, said Jim P. Heneghan, vice president.

"When mortgage activity was in full swing a year or so ago, we handled it by trying to utilize staff from areas in the bank who had the capacity to lend out people," as well as using temporary employees, usually for six months at a time, Mr. Heneghan said. "As the refi boom came to a close, it was easier to shift them to other areas of the bank and use temporary people."

Because Northern Trust hired very cautiously, it is already back at a normal staffing level, Mr. Heneghan said.

At PNC Mortgage Co., John F. Karaszewski, senior vice president, said the lender's six regional servicing centers make it possible to control cost and staffing.

Some full-time workers were laid off with temporary employees, starting in the second quarter of 1994, he said. But new hires may be in PNC's future.

"We think business will pick up in the spring and we will augment staff with part-time people," Mr. Karaszewski said. PNC will wait until February to see what business is like before new staff is hired.

Integra Mortgage Co., Pittsburgh, also used temporary help during 1993 and early 1994, said Thomas J. Finnegan, executive vice president, and has since eliminated all temporary staff. Because Integra does a large servicing business, it was able to place some employees from other areas of the mortgage department into servicing "to work on an internal temporary basis," he said.

"We've not had any layoffs so far, but we're not too far from some staff adjusting here through attrition and placement in other positions where we need additional staff, like servicing," he said.

When Integra acquired Mayflower Mortgage Co. in November 1994 to expand its business in Indiana, Ohio, and Kentucky, Mayflower's employees were absorbed, Mr. Finnegan said, to assist with the regional expansion.

Mr. Finnegan expects an increase in volume in 1995, and said Integra would shift employees from other areas as necessary.

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