It's hard out there for megalenders. Production volume at the nation's four largest funders of home mortgages took it on the chin in the first quarter as rising rates early in the year dampened refinancing activity.

Of course, in mortgage banking it's all relative.

At the Big Four of home finance — Wells Fargo, Bank of America, JPMorgan Chase and Citigroup — originations fell 35%, 33%, 29% and 35% compared with the fourth quarter. But keep in mind that the fourth quarter was the industry's best in almost two years, with $544 billion of one- to four-family loans reaching the closing table.

Compared with last year's first quarter, the production situation looks a lot better. Wells' originations increased by 9%, JPMorgan Chase's rose 14% and Citigroup's rose 36% year over year. Only Bank of America had a decline, of 14%. (All these lenders except for Wells Fargo have either left or are leaving the wholesale channel.)

Still, home lenders of all sizes tend to hire more when they see even a hint of improvement in market conditions (usually lower rates) and then slash their work force when applications tank, as they did in the first few months of the year.

Over the past two weeks, Wells Fargo and Bank of America sent layoff notices totaling to 7,700 full-time mortgage workers, a move that almost certainly will be reflected in employment numbers due out in early May.

Wells and B of A have claimed that very few of the employees who were let go were loan officers; most were processors, underwriters, support staff and, in some cases, contract workers.

Almost every originator in the nation is expecting a roughly 25% to 30% decline in fundings this year ($1.1 trillion from $1.6 trillion), according to figures compiled by National Mortgage News. Some companies are hopeful the second half will bring stronger volumes, at least in home purchases.

"I think that by the middle of the year we'll see activity pick up," said Bill Dallas, the chief executive of Skyline Financial in Agoura Hills, Calif.

"Employment and home prices are starting to solidify," Dallas said. "Look at the all-cash transactions on lender-sold properties that are taking place. It used to be 80% of deals; now it's 40%."

Skyline is mostly a West Coast lender, with a heavy emphasis on California. (In years past the state has accounted for 15% to 20% of all mortgages funded in the U.S.)

Dallas says median-priced homes in the state are moving but jumbos "are still a challenge."

His biggest complaint is one other lenders have lodged: "We're still having trouble getting properties appraised at the right price."

Skyline is selectively hiring loan officers, but only if they have strong referral relationships with real estate agents. "If you don't have purchase money ties, you will be in trouble," Dallas said.

Jim Dobier, who runs a branch in New Mexico for Sierra Pacific Mortgage, is also hiring. "We have about four LOs now," he said. "We hope to add about six more by yearend."

But Dobier too stressed that it's all about having ties to real estate agents. "Realtors are seeing their business pick up," he said. "We've been in that business for years."

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