Record-shattering mortgage rates, which are heading for 12 percent for prime customers at some lending institutions, are cutting home-loan volume in the Washington area significantly.

Total residential lending activity was down 23 percent in the District during the first seven months of this year, according to new data compiled by the Lawyers Title Insurance Corp.

Local savings and loan associations, the mainstay of the home finance sector, have been particularly hard pressed. District S&Ls have lost deposits steadily during recent months -- including $48 million alone from April through July. Bruce Bryan, executive vice president of the Metropolitan Washington Savings and Loan League, confirmed that preliminary data on August points to "more and more red ink" for his members.

With little or no fresh deposits to loan to home buyers, S&Ls have been forced to rely heavily on the secondary mortgage market, where money is more costly.

S&Ls must now charge no less than 11 3/4 percent on new home loans -- with a $75,000 maximum -- in order to resell mortgage commitments to the congressionally chartered Federal Home Loan Mortgage Corp., one of the two major secondary market purchasers. The price of long-term secondary funds has climbed week by week since early August, and market analysts see nothing on the economic horizon to change this pattern.

The Federal Reserve Board continues to push interest rates higher in its strategy to defend the dollar and stem inflation. Money market mutual funds, which invest in high-yielding certificates of deposit and other secutities, continue to siphon deposits out of lower-yielding savings accounts in thrift institutions.

And demand for housing, though declining in percentage terms relative to 1978, remains strong enough in areas such as Washington to keep the squeeze on banks, S&Ls and mortgage bankers -- and keep the price up.

A number of local lenders are responding to these economic forces by closing their windows to "spot" loans, the walk-in variety that make up the bulk of any home-buying market. Instead, they are concentrating on packages of loans associated with large subdivisions or condominium conversions.

Washington Federal Savings and Loan Association, for instance, is only handling large groups of loans, such as for the Grosvenor Park condominium in North Bethesda, whose basic terms and numbers have been negotiated with developers or converters in advance. Even on new loan packages, however, said Howard Orebaugh, senior vice president of Washington Federal, the going rate has to be 11 3/4 percent in the present market.

"I wouldn't be surprised to see that number at 12 percent -- even 12 1/2 percent -- before we peak out" this year or next, assuming that U.S. monetary policy and inflation remain on their present course, Orebaugh added.

In a rate crunch like today's, mortgage sources outside the traditional thrift institutions continue to offer the only potential bargains for consumers. Mortgage bankers or brokers in Virginia, Maryland and the District have access to pools of investor dollars that may be less costly than those obtainable through S&Ls and banks and may offer rates of 11 percent or under.

Mortgage America of Falls Church, for example, currently has a large block of 11 percent convenional money available for loans of up to $150,000, Senior Vice President Harry Fife said. The money is "conventional" because it is not intended for use with federal (FHA or VA) housing programs. The maximum $150,000 loan requires a 25 percent down payment; a $125,000 loan requires 30 percent down.

Kenneth R. Harney is executive editor of the Housing and Development Reporter, published by BNA, Inc., and author of Beating Inflation With Real Estate, published by Random House.