The home loan unit of Prudential Insurance Company of America is preparing to lay off nearly 600 people, or 12% of its staff.

The plans, announced internally last week, could mark the start of a massive retrenchment by the mortgage industry.

With rising interest rates all but killing the refinancing boom that began two years ago, many lenders have suffered sharp drops in business.

"It would not be surprising to see announcements on staff cuts from a broad spectrum of companies," said Warren Lasko, executive vice president of the Mortgage Bankers Association of America.

Gettting It Over With

Already some lenders have trimmed certain areas of their staffs. But the Prudential unit, St. Louis-based Residential Services Corporation of America, is taking much more aggressive action.

"Our approach was to do this right and try to get it all over at one time," Marvin I. Moskowitz, chief executive of the unit, said in a phone interview.

Residential Services encompasses Prudential Home Mortgage -- the nation's second-largest mortgage originator -- and several related businesses.

Mr. Moskowitz said the cuts would affect most areas of the company - and people of virtually every rank.

Loan Demand in a Slump

The cutting comes as demand for home loans is plunging. Applications for refinancings have fallen by about 70% just since mid-February, according to the Mortgage Bankers Association.

As a result, economists have been steadily reducing their predictions for industrywide originations. The trade group says the tally will drop to $770 billion this year from a record $1 trillion in 1993.

Prudential, like many other mortgage companies, began cutting temporary and part-time workers earlier this year. But, Mr. Moskowitz said, the action proved insufficient.

"The decline in market activity has been much more severe than anyone anticipated," he said.

In an April 28 memo to Residential Services' 4,800 employees, Mr. Moskowitz said the new cuts would be carried out "quickly and equitably." But no timetable was set.

The plans follow a broad realignment of Residential Services' top management.

Those changes, aimed at bolstering efficiency, put all the company's sales efforts under one executive, Philip W. Bracken, and all the processing and servicing under another executive, Richard G. Thornberry.

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