JPMorgan Chase's recent forecast for an unprofitable year in the mortgage business came as a surprise—not just to Wall Street, but to other lenders.

Describing home loans as "the most painful business ever," JPMorgan Chase Chairman and CEO Jamie Dimon, speaking at an investor presentation in late February, said that the company would cut another 6,000 jobs this year in its mortgage unit, on top of 11,000 last year.

"It shows how tough the originations business is today," says Mark Mason, CEO of HomeStreet, a mortgage and commercial banking company in Seattle. "I was struck by the fact that Chase expects to lose money [in mortgages] in the entire calendar-year 2014."

The outlook from Chase, the largest U.S. home lender after Wells Fargo, is a forceful reminder that the housing market has not yet fully recovered from the downturn, with home sales and mortgage lending still below prerecession levels.

"Everybody is cautious," says Donavon Ternes, chief operating officer and chief financial officer at the $1.1 billion-asset Provident Savings Bank in Riverside, Calif., which cut 72 jobs in its mortgage division, a 23% reduction, from June to December of last year. "You only have to look at the refinance numbers [industrywide] to understand that every mortgage banker's volume was down significantly in the fourth quarter and that business is not going to pick up anytime soon."

Dimon hasn't signaled a total retreat by JPMorgan Chase. "We are here for the long game," he promised investors.

But Ternes says some lenders may jump at the chance to hire loan officers from the New York-based megabank while it retrenches.

"If Chase were to pull back too severely and the business did not fall off as much, some lenders will be in a position to take market share from Chase," Ternes says. "It's a balancing act."

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