"The refinancing volume has significantly dropped off," said Jim Hunter, president of the board of directors at the Colorado Mortgage Lenders Association. "It is putting pricing pressure into the market."
Wells Fargo announced Aug. 7 that it would let go of 763 loan-processing workers nationally, including 118 in Colorado, because of the slowdown in mortgage activity.
A day later, Chase Mortgage Banking said it would eliminate 150 positions in Colorado, effectively moving its mortgage-processing operations out of state.
Representatives for both banks said mortgage workers, to the degree possible, were being shifted to other positions.
"In response to our customers' changing needs, we are consolidating our mortgage business into fewer locations," said Amy Bonitatibus, a spokeswoman at JPMorgan Chase.
The reductions represent a big change from earlier this year, when lenders were hiring to deal with borrowers beating down the doors to get loans approved in the mid-3 percent range.
Total mortgage originations at Chase were 50 percent higher in the first half of this year compared with 2012, Bonitatibus said.
Since peaking the week of May 3, a weekly index that measures mortgage-refinance applications is down 59 percent, according to the Mortgage Bankers Association.
Refinances, which were 83 percent of all mortgage activity in mid-December, are down to 63 percent. Economists at the MBA estimate they could decline to a third of the total by the third quarter of 2014.
All of that means less business for lenders. Quarterly mortgage-origination volumes were running between $471 billion and $511 billion over the past four quarters. That volume could drop to $247 billion by the fourth quarter, the MBA forecasts.
Interest rates are to blame. The surge in 30-year mortgage rates from the mid-3 percent range in May to above 4.5 percent in June made refinancing much less attractive for many borrowers.
"From these levels, another 50 basis points will put the mortgage rates at the post-crisis highs," said Maninder Sibia, an economist with Economic Advisory Service. "That would indeed kill the refinance market."
Lenders knew that 30-year fixed loan rates below 4 percent, the result of heavy purchases by the Federal Reserve of mortgage-backed securities, weren't permanent, Hunter said.
But the speed of the reversal surprised everyone, he said.
"Our company was 55 percent purchase and 45 percent refi through the end of the year," Hunter said. "We are now at 85 percent purchase and 15 percent refi."
Some independent lenders, such as Starkey Mortgage, said they chose to stay focused on home-purchase mortgages.
"Refi is never a long-term market. There is always a refi boom," said Anthony Lebermann, sales manager in Denver with the Texas lender.
Likewise, Colorado State Bank and Trust chose to keep its focus on purchase mortgages when it expanded into mortgage lending in 2009.
"This change will cleanse out the system of people who are focused just on refinances," said Ryan Bennett, regional manager for the bank's mortgage group.
Larger lenders, however, didn't have as much flexibility. When existing customers came asking for a refinance, they had to respond or risk losing them.
Lenders said strong home sales this summer have supported the purchase side of the business and that the Home Affordable Refinancing Program is still generating demand for refinancings from people trapped at rates above what the market is offering.
Refinances also have a steady volume of business from people dealing with divorces and other life changes, as well as those looking to shorten the length of their loans, said Tony Julianelle, area sales manager for Denver at Wells Fargo Home Mortgage.
Rates on 15-year and 10-year mortgages remain below 4 percent.
But there is a sense among lenders that there is no going back.
Since 1981, lenders and borrowers have become accustomed to boom-and-bust cycles in refinancing activity. Every time rates rose, the sense was that the long-term trend was lower. A drop would bail everyone out by setting off another surge of refinancing.
Employment counts in the just-ended refi wave don't seem to have gotten out of hand, in part because lenders knew the surge was artificial. But there is a growing sense that the refi boom that ended in May may have been the last one for a long time.
"This liquidity isn't ever coming back," Julianelle said.