D-Day for Washington Mutual

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Analysts cheered the move, saying that the company needed to make the moves to boost its liquidity and become leaner.

"It's unfortunate always when people lose their jobs, but you have to look at the forest rather than the trees," said Howard Shapiro, an analyst at Fox-Pitt Kelton Cochran Caronia Waller, a boutique investment bank in New York. He added that home loans make up too much of the company's business and it needs to fix that "to limit earnings volatility."

WaMu isn't alone in closing loan offices. Companies such as Countrywide Financial (CFC) and Tennessee-based First Horizon (FHN) have announced layoffs in their mortgage sales forces, though they haven't closed down all of their loan offices. But the mortgage industry, while not mortally wounded, is still badly crippled. Home sales are down, stricter loan standards have reduced the pool of qualified buyers, and borrowers—especially in California, Florida, Arizona, Michigan, and Nevada—are defaulting in large numbers.

Analysts Applaud Moves

The company could lose home loan market share to competitors such as Wells Fargo (WFC) and JPMorgan Chase (JPM), which are now snapping up WaMu's most valuable loan officers. But the company needed to cut costs and increase capital to survive the downturn, said Jaime Peters, an analyst with Morningstar (MORN).

"There was not enough volume that the offices were producing to turn a profit," said Peters. "The question is how long the crisis will last before…they'd be getting enough money for those offices to be profitable."

Dick Bove, a financial strategist with Punk, Ziegel & Co., a New York-based investment bank, said the company had no choice but to cut its costs.

"They need to shrink their balance sheet and get loan losses under control," Bove said. "And they need to make sure that they're generating the most of the profits from deposits at their retail centers."

Blindsided by the Downside

Still, Apr. 30 is a red-letter day for the whole industry. The loan officers this week were cleaning their desks and planning their next moves. Some of them are fielding multiple offers. Others are considering the company's offer to place them in a bank branch, a move the top performers say they would not seriously consider, not just because of lower pay but because of potential delays in loan processing. They say less experienced branch-level mortgage consultants can clog the processing system with loans that don't meet proper guidelines.

Like many victims of the mortgage collapse, most of the loan officers, especially those who were in the Bahamas, feel burned. One loan officer, who agreed to be interviewed only on the condition of anonymity, felt so hopeful about WaMu and his future at the company that, on his return from Nassau, he bought more shares of the company.

Other employees, also anonymously, echoed his disappointment. "You always feel good about these things," a second loan consultant said of the trip. "We were told multiple times that we were valued and an important part of the strategy."

Gopal writes about real estate for BusinessWeek.com in New York .