With interest rates rising and "For Sale" signs lingering on lawns around the country, the mortgage banking business is undergoing an unwelcome transformation.

"Real estate is about to turn into a real business and not a free ride," said Stephen La Due, president of Affiliated Mortgage, a Wauwatosa Wis.-based mortgage broker.

How the mortgage industry handles that change — which follows a four-year boom — is expected to dominate the agenda at the Mortgage Bankers Association's annual convention this week in Orlando, Fla.

"The practitioners in real estate, mortgage brokers and realtors, will be thinned as rates go up," said LaDue, who founded Affiliated Mortgage in January 1987, and who started in the industry in 1983, when mortgage rates were in double digits.

Interest rates, to be sure, still remain historically low. But they are up from lows of recent years when they hit levels not seen since the Eisenhower era.

Last week, a survey conducted by housing agency Freddie Mac recorded a rise in rates for 30-year home loans — the most popular mortgages — to 6.10 percent, a level not seen in 15 months. The 30-year rates have been below 6 percent for much of this year; their recent rise comes amid expectations that the

Federal Reserve will keep increasing interest rates. Higher borrowing costs are expected to lower the pace of mortgage refinancings and home sales, which would likely in turn slow housing price gains. Mortgage bankers processed a record $3.9 trillion of home loans in 2003 and $2.8 trillion of loans in 2004. This year, some market observers expect $2.7 trillion worth of mortgages to be underwritten.

Some hints of a mortgage banking slowdown have shown up in third-quarter earnings reports. National City Corp. of Cleveland said mortgage banking revenue plummeted to $183 million from $370 million a year earlier.

A slowing in sales is apparent in Commerce Department data, which found that the market for new homes had 4.7 months of supply, the highest for the year, and an indication that houses are taking longer to sell. Existing homes for sale also hit that 4.7 month supply level in August, according to the National Association of Realtors.

"It is no longer a seller's market. It is more of a buyer's market," LaDue said. "The value of a realtor is about to go up because it's going to be more of a buyer's market."

Still, while mortgage rates are just over 6 percent, Brenda Binczewski, a real estate agent with Carlson GMAC Real Estate in Palmer, Mass., believes the slight rise in borrowing costs may actually prompt some prospective home buyers to snap up homes ahead of any further rate increases.

"We will see it active under 7 percent. It has been years since it has been above that, but it will be a shocker for some buyers to see interest rates over 7 percent," she said.

The slowdown may prompt some people to leave the mortgage banking or real estate businesses — or to find their jobs eliminated in staff reductions.

"There is tremendous overcapacity in the business," said Michael Moskowitz, president of Equity Now Inc., a New York-based lender. "When times get tough it really separates the wannabes from the true professionals."

"We are definitely going to see downsizing," said John Challenger, chief executive of Challenger Gray & Christmas, a Chicago-based outplacement firm that has received calls from financial companies looking to trim staff. "There just isn't going to be a need for people to the degree that was required in the boon years."

Citing U.S. Labor Department data, Challenger estimated that 2.93 million people were in what's called the credit intermediation business, which includes mortgage lending, in September. That is slightly below August's 2.94 million.

There is concern in the business that a slowdown in sales, and in turn, lending, could lead some lenders to make riskier loans in an effort to keep business volumes up.

Technology is also expected to be a focus of the mortgage bankers' meeting. Computers are increasingly used to process loans faster and more profitably. Today a loan application for a first-time buyer can be closed in 15 days, compared with 45 to 60 days in the 1980s.

While a completely paperless mortgage application may not be done on a large scale for another five years, technological advances likely will continue to be embraced by mortgage bankers.

For example, lenders likely will rely more on electronic appraisals. This so-called automated valuation uses multiple listing services (MLS) for comparable property prices within a neighborhood to determine a home's value. "Consumers want it now. They want instant gratification," said LaDue, adding that a physical inspection of a property likely will fall to home inspectors hired by home buyers

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