When the going gets tough in the mortgage business, the tough starting laying off loan officers, underwriters, processors and any other workers whose jobs are tied to the origination function.

And now, with growing fears in the residential finance industry that declining applications -- driven by a weakening market for refinancings -- are once again taking their toll, several banks and mortgage brokerage firms are contemplating cutting production staff. Others are already handing out pink slips.

Industry executives are already seeing resumes from workers at CashCall, a Top 30-ranked lender that has feasted on the refi market by advertising on national television. Paul Reddam, CashCall's founder and president, could not be reached for comment. But industry scuttlebutt says the non-bank telesales lender has plans to cut at least 200 workers.

Bill Dallas of Skyline Home Loans has seen only a small decline in applications at his firm. But the company may be one of the fortunate ones. "Some shops are seeing their pipelines fall 35 to 40 percent from their peaks," Dallas said.

Lender layoffs may be good new for borrowers, though. Paradoxically, it could mean better service. And it also could mean better deals.

As refinancings -- the low-hanging fruit of the mortgage business -- begin to dry up, lenders will become more desperate for customers. And that means many will start bending over backwards to attract new borrowers.

Don't expect to see them cut rates, but they could offer price breaks on application, origination and other fees. The higher rates go, the more likely lenders will be offering bargains.

"Right now, everyone is looking at the best way to right-size their operations," said Dave Lykken, managing partner at Mortgage Banking Solutions.

Lykken, whose firm advises mortgage lenders on mergers and acquisitions, said that too many companies are "over-confident in how they will handle" the mortgage downturn.

Besides trimming back on their fees, some lenders -- in particular, banks that hold mortgages on their balance sheets instead of selling them to mortgage giants Fannie Mae and Freddie Mac -- may start loosening their loan terms.

Ever since the housing bust of 2008, loan terms have been ultra-tight, with lenders requiring higher down payments and loftier credit scores. But the last time refinancings slowed down, lenders began holding their loans rather than selling them. And the result was less-strict underwriting.

There already are signs that loan terms are loosening at some shops. Some lenders such as Navy Federal Credit Union in Vienna, Va., have been originating no-down-payment loans, but only for select customers.

Navy Federal's product is called "HomeBuyers Choice" and though it was introduced in February 2010, interest in the loan didn't pick up until this spring. So far this year, the loan has accounted for 14 percent of the credit union's applications. It accounted for only 10 percent of the institution's applications in all of 2010. (Navy Federal declined to provide any data on how many loans it actually closed.)

Katie Miller, vice president of mortgage products at Navy Federal, noted that the loan, which it keeps in its portfolio, "is very popular right now" and that real estate agents, in particular, are showing a strong interest in it.

Even though talk of layoffs in the lending business is on everyone's lips, the latest government figures show that mortgage hiring was almost flat in May compared to April.

According to the Bureau of Labor Statistics, 213,500 full-timers were employed in May in "real estate credit," which covers mortgage banking. That represents a 7-percent increase from a year ago but a loss of 1,600 jobs from March.

The latest mortgage job totals lag the national numbers by one month and seem slightly dated, given the fast pace of the drop in applications. In residential finance, declines in applications can be violently quick.

In the mortgage servicing sector, the employment situation appears to be more stable because there are still plenty of delinquent loans out there that require "high touch" from servicers trying to collect money.

For servicing employees, the biggest fear is that their employer will shift the workforce to a cheap offshore platform.

Still, mortgage companies are continuing to hire loan officers, but only if they have solid ties to their local real estate and home builder communities.

One East Coast-based production chief said he continues to travel around the country interviewing potential loan officers. But he also said that he's alarmed at some of the salaries being offered now, especially to underwriters.

Requesting anonymity, this executive said one of his top underwriters is making $110,000 per year. But one of the country's largest mortgage lending operations just made him an offer of $160,000.

Fixed mortgage rates have definitely been rising, and recent forecasts generally indicate they are not going to drop again anytime soon. So is now the time to lock in a low fixed rate, if you haven't already?

A lot depends on your personal circumstances, of course. But if the weather forecast called for rain, and you were definitely planning to go outside, you would probably carry an umbrella. You also would know there was a chance the forecast might be wrong, but usually a greater likelihood it would be right.

So, if you are set on getting a fixed-rate loan to buy a home, or could benefit from a refinance to lower your rate, odds are this is a good time to do so before rates move any higher. Indeed, as Moneyrates.com senior financial analyst Richard Barrington pointed out in a recent forecast, this may very well be the one last once-in-a-lifetime opportunity.

Mortgage rates are artificially low right now thanks to a Federal Reserve mortgage bond-buying spree that Fed officials have said will end when unemployment improves enough. But although the popular 30-year fixed rate has spent most of 18 months below 4 percent, Barrington warns: "You don't want to count on 3.5-percent mortgage rates ever returning. Rates are more likely to move higher rather than lower over the next six to 12 months."

In his research, Barrington wanted to see "what normal really looks like" once the Fed backs off. And what he found was that by mid-2014, the average rate for a 30-year fixed mortgage could be above 6 percent.

But any discourse on the current state of mortgage rates and what to do about them should start by putting them in their current context. Sure, 4 percent is more than 3 percent, and 5 percent is more than 4. But historically speaking, rates are still low.

That said, it is never a good idea to try to anticipate the ups and downs of mortgage rates. If you are ready to buy or refinance, lock in your rate now. Don't gamble, especially since your rate-lock may allow your rate to float back down if rates recede. 

If your speculator instincts take hold, the experts suggest running the numbers every time rates move by a quarter percent or more. In Freddie Mac's recent national survey of mortgage rates, the 30-year rate jumped by 0.5 percent in one week. But that increase was extraordinary.

Next, understand the true cost of rising rates. On a $250,000, 30-year loan, the difference between payments at 4.25 percent and 4.5 percent is a relatively small $37 a month ($1,230 vs. $1,267). Rather inconsequential when you are already spending that much money.

But there are other options. One, says Wendy Cutrufelli of the Bank of the West in San Francisco, is to increase your down payment. Perhaps a gift from a family member can help here, or maybe you could borrow from your retirement fund. Hiking your down payment means borrowing less, which could qualify you for a lower rate.

Also consider an adjustable rate mortgage. Even though ARM rates are lower -- and could move even lower in a rising rate environment -- Barrington and others warn against an adjustable rate unless you know for certain you can get out of it before the first reset period.

Toward that end, though, Cutrufelli points out that most major institutions offer hybrid ARMs with fixed-rate periods of five and seven years -- and sometimes even 10 years -- before the first adjustment, which should give most people plenty of time to worry about higher rates later.

ARM rates are currently 1.5 percent to 1.75 percent lower than 30-year rates, so it should be easier to qualify. But while most 7-1 and 10-1 ARMs are typically qualified at the initial rate, the Bank of the West executive points out that current Fannie Mae underwriting guidelines call for qualifying borrowers at the current rate plus 2 percentage points.

Another possibility is a 15-year fixed loan. These shorter-term loans are generally priced at 1 point below their 30-year cousins. But even at a lower rate, they are often more costly because they amortize -- pay down -- over a much shorter period. Still, they're something to look at.

Finally, consider an interest-only loan. It's a dangerous choice, to be sure, and one that may not be around much longer under current federal legislation. But it's certainly a less expensive one, at least at the outset.

A reverse mortgage works best as a line of credit that allows seniors to meet their immediate needs, such as home repairs, while preserving the remaining balance as a nest egg in case of emergencies.

But many seniors have used reverse mortgages as a lifeline to deal with more urgent financial needs, such as avoiding foreclosure and paying off other household debts. And that's gotten some of them into financial hot water -- a situation Uncle Sam is trying to rectify by tightening program guidelines.

The National Council on Aging (NCA) says one-third of its counseling clients have mortgage debt that exceeds 50 percent of the value of their home. Using a reverse mortgage to pay off the existing mortgage and other household debt leaves these borrowers with little equity to fall back on.

As a result, the Federal Housing Administration is experiencing "technical" defaults on reverse mortgages. These are cases in which borrowers can't afford to pay their property taxes and homeowner's insurance.

The losses on these defaults take money from the FHA mortgage insurance fund. So the FHA is moving to tighten its requirements for seniors who apply for an FHA-insured reverse mortgage, which the agency calls a Home Equity Conversion Mortgage.

FHA pioneered the reverse mortgage and introduced the HECM product 24 years ago. Now, for the first time, the agency wants to impose a financial assessment test on borrowers.

The test will determine if the borrowers have enough remaining cash flow to pay their living expenses after meeting their HECM obligation to pay taxes and insurance.

For borrowers who flunk the measure, the lender would be required to use a portion of the loan's proceeds to create an escrow account. The amount of the account is still under discussion within the agency, but under consideration is a set-aside of two to three years' worth of taxes and insurance payments.

But it's also possible that the FHA may decide that every HECM borrower, not just those who fail the test, will have to set aside an amount for taxes and insurance in case of an emergency.

Consumer and industry groups support efforts to shore up the HECM program, which is expected to experience increasing demand from the aging baby boomer generation. But there are some concerns the FHA may tighten too much. Consequently, consumer groups want to be sure there is some flexibility, particularly for low-income seniors.

NCA senior director Ramsey Alwin stressed that the set-aside should take into account the numerous public and private programs that provide property tax relief for seniors.

The nonprofit group that provides HECM counseling operates a website -- benefitscheckup.org -- that lists 160 property tax relief programs across the country. It also lists programs that help with Medicare premiums and co-pays and provide assistance with prescription drug and utility costs.

"The average reverse mortgage borrower can identify $5,500 worth of savings a year" from these assistance programs, Alwin said. "That will free up their limited income and could put them on a better financial footing when it comes to the financial assessment."

Many seniors ended up in technical default because they took out a Standard Fixed Rate HECM loan, which FHA has "temporarily" withdrawn from the market.

The standard fixed-rate product turned out to be risky because the borrower had to take out all the equity at one time in one lump sum. As it turned out, too many people didn't know how to handle such a large amount of cash.

Many also ended up in default because they were facing a financial crisis, such as a foreclosure, and had to act quickly.

Seniors should be looking at the reserve mortgage option "early and often," Alwin advised. And they should decide before a crisis when they want to use home equity to supplement their income.

The NCA has a support tool on its website that helps people think through the implications of a reverse mortgage and consider other options to free up cash.

Alwin also pointed out that FHA offers a line of credit option -- the HECM Saver -- that is more "consumer friendly" than the standard fixed-rate product.

The Saver has lower upfront costs, and because it is an adjustable-rate product, the proceeds of the reverse mortgage don't have to be dispersed all at once. So the borrower can tap into his line of credit only as his needs dictate.

The Saver reverse mortgage allows the borrower to "pay off immediate needs and maintain the nest egg for a rainy day," Alwin said.

Jeff Taylor, a reverse mortgage consultant and the founder of Wendover Consulting, noted that the HECM program primarily offered a line of credit when FHA first rolled it out in 1989.

Despite some aversion to ARM products on the part of consumers, Taylor expects demand will revert back to the line of credit product, the unused portion of which grows annually, much like a savings account.

"We are seeing financial planners across the country taking a second look at the HECM Saver ARM program as an option for many seniors to bridge the gap -- so they don't have to sell their stock portfolios or other investments," Taylor said.