Now that residential application volumes are on the wane — thanks to rising mortgage rates — the obvious question becomes the most wrenching one: When will mortgage bankers begin cutting heads and which firms will bite the dust?

Almost every executive and loan officer interviewed in recent weeks was aware that a day of reckoning is on the way, but most believe that it will be the "other guy" that gets hurt and not them.

Loan originators can be an optimistic lot, but if there's a doubt that a slowdown is on the way, JPMorgan Chase & Co.'s chief executive, Jamie Dimon, made it clear when he recently told analysts that residential loan demand probably peaked in the fourth quarter and that it's highly unlikely that his company will match its fourth-quarter production total of $56 billion.

In December, he said, "application volumes were pretty low. That number has to come down."

When the yield on the benchmark 10-year Treasury neared 3.6% in early January, refinance applications dried up and telephones stopped ringing.

Bill Dallas, the CEO of Skyline Financial, a nonbank lender in Agoura Hills, Calif., said that during the first half of January applications at his shop were off 35%, with originations dropping 25%.

Since then rates have fallen slightly and it looks as though applications are once again picking up. Many lenders are hanging their hopes on purchase money loans increasing significantly this year. But as one West Coast mortgage banker put it, "When you go from $1.5 trillion in production [in 2010] to $1 trillion [in 2011] there are going to be bodies lying in the street."

"I'm sorry," he said, "but not everyone is going to make it onto the lifeboat."

This executive, requesting his name not be used, raised another point: even if the job picture improves dramatically this year purchase money loans will not increase enough to make up for the decline in refis.

Over the third and fourth quarters refis accounted for about 75% of fundings.

And the biggest complaint being heard around the industry centers around tight underwriting guidelines.

In years past, when volumes were slated to fall, many lenders — as though on cue — loosened their guidelines in an attempt to spur applications. But that tactic works only when the housing market is healthy, and few believe that rising home values are around the corner.

As for layoffs, large reductions have yet to occur at many of the top-ranked shops, and most firms have enough loans in their pipeline to get them through the first quarter at the very least. In some cases, lenders such as Flagstar Bancorp and Ally Financial Inc.'s GMAC Mortgage are looking to hire new loan officers.

But one California account executive offered this qualification about recruitment: "Generally, firms are looking for salespeople on a commission-only basis. That means no salary."

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