Broad gains for stocks despite Fed's rate hike.

Mortgage banking stocks were up broadly last week -- despite the hike in interest rates imposed by the Federal Reserve Bank.

Investors typically have viewed rising rate as bad news for mortgage banks, reasoning that higher rates means less lending.

This time, however, investors seem more interested in the buyout surge currently under way in the industry than in plain, old business fundamentals.

The result is that such stocks as North American Mortgage, Arbor National Mortgage and Express America all advanced strongly.

North American Mortgage, currently in negotiations with potential acquirers, advanced by $1 to $31.13. Arbor National, also a takeover candidate, gained $1.25 to close the week at $19.

Express America, which was taken off the market in July, soared more than 20% in the week, closing at $7.75, as rumors swept the market that the company was close to inking a deal for its servicing rights, the company's main asset.

That rumor proved to be on target Monday morning when the company announced it had entered into a nonbinding letter of intent to sell its servicing. The name of the buyer was not revealed.

Express America also said any deal would not affect its originations unit.

With all the attention being paid to mortgage banks, private mortgage insurers have remained Somewhat neglected by the investing public. However, more analysts are beginning to cover the sector.

Last week, PaineWebber analyst Gary Gordon initiated coverage of MGIC Investments with a rating of "attractive."

MGIC closed the week at $29.88, up $2.13.

Mr. Gordon likes MGIC in part because he believes the mortgage insurer will benefit from a government-sponsored push to expand home ownership by people of low and moderate incomes. He believes low down payment debt outstanding should grow by more than 10% annually over the next five years, thus pushing up business at insurers like MGIC.

Michael Corasaniti, an analyst at Alex. Brown & Sons, is less sanguine about the sector and MGIC specifically. Mr. Corasaniti. focusing more on the immediate future, dropped his recommendation on MGIC Investments in May to "neutral" from "strong buy."

His concern "is that the new business written will be weak." New business written totalled $70 billion for the first six months of 1994. Mr. Corasaniti fears that figure may drop to as low as $30 billion in the second half of the year.

"That could lead to margin pressure, namely price cutting," he says.

The mortgage insurance industry has seen little price competition in recent years, as the relatively few market participants have seen fit to compete solely on service.

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