Large regional banks will also be cutting back staff. BBT ) CFO Daryl Bible said at a conference last week that it would be migrating its direct retail mortgage loan originations into a mortgage company subsidiary. While other large regionals have "

Cardinal also said "Expense reduction and revenue enhancement measures have been and will continue to be implemented to offset the decrease in mortgage production and the decline in the marketing gain percentage," but that the bulk of the benefit of the cost declines wouldn't be realized until the fourth quarter. The bank was downgraded by several sell-side analysts on Thursday and Friday, and its shares dropped 5% Friday to close at $16.76.

Banks large and small have been preparing investors for difficult revenue comparisons by preannouncing the bad news. JPM ) CFO Marianne Lake at a conference on Sept. 9 said the bank expected its mortgage origination business to post a net operating loss for the second half of 2013.

NEW YORK ( TheStreet ) -- Third-quarter bank earnings will feel an unwelcome jolt as mortgage volume has fallen off a cliff.

In a note to clients on Monday, Staite also forecasted a 20% drop in fixed-income trading revenue, because "July and August were very slow months as investors sat on the sidelines waiting for more clarity on Fed tapering, Syria and the EM slowdown and we believe the weakness has extended into September."

Staite cut his third-quarter EPS estimate for Morgan Stanley by 25% to 38 cents from 50 cents.

Atlantic Equities' estimate for Goldman Sachs was cut by 18% to $2.47 from $3.00.

Staite's third-quarter EPS estimate for Citigroup was lowered by 14% to $1.05 from $1.22.

The analyst added that "While FICC and mortgages are clearly major weak spots we think other bank revenues will be relatively stable including net interest income which we expect to be flat YoY." That translates to an expected year-over-year revenue decline of just 5%, however, Staite made some pretty sharp cuts to his third-quarter earnings estimates for some of the big banks:

"Our EPS estimates for JPM, BAC and WFC were already recently adjusted following comments at an industry conference. JPM was previously cut by 14%, BAC by 10% while WFC was held flat," Staite wrote.

How will investors react? How will you react?

It all depends on your investment horizon. For investors who can commit for several years and ignore several months of volatility from the mortgage decline and the continued hysteria over the eventual curbing of the Federal Reserve's monetary stimulus, the stocks of the largest U.S. banks are trading for significant discounts to smaller regional banks, on a forward price-to-earnings basis, even though shares of the big banks have been so strong this year.

But short-term investors are looking at a rocky road.

Staite favors Bank of America heading into third-quarter earnings season. "While Q3will be a 'noisy' quarter for all major banks including BAC we think BAC will show better underlying cost and revenue trends than its major peers," he wrote. The analyst added that he was forecasting Bank of America's adjusted revenue to fall by only 1%.

"Given these better trends we remain comfortable with our 2014 EPS estimate for BAC that is 16% ahead of consensus. We think the shares remain attractive on a