Shares of Countrywide Credit Industries plunged on heavy volume Wednesday after the mortgage banking company surprised Wall Street with weaker earnings than expected in its latest fiscal quarter.

The stock was down $2.25 to $24.375 in late afternoon trading, and was among the most active issues on the New York Stock Exchange, with turnover exceeding 2.5 million shares.

In early market action the shares fell as much as $3.75 - or 14% - after being downgraded to "underperform" from "neutral" by Jonathan E. Gray of Sanford C. Bernstein & Co.

But the stock regained some ground after Steven Eisman of Oppenheimer & Co. upgraded Countrywide to "buy" from "market performer" and returned it to the investment firm's recommend list of stocks.

Specter of Price War

Most other mortgage company stocks fell as well after Mr. Gray repeated warnings of an industry "price war" for market share as the home mortgage refinancing boom "subsides substantially."

"Countrywide is an excellent and very well-managed company that we like for the longer term, but we are reluctant to recommend that our clients hold the stock while the bullets are flying , as we think they soon will be," Mr. Gray said Wednesday.

Among other mortgage firms, the most damage was suffered by North American Mortgage Corp., whose shares fell $2.125 to $24 in later afternoon trading.

Some See Overreaction

In addition to Oppenheimer's Mr. Eisman, other analysts also took issue with the Bernstein analyst's pessimistic views.

"The stock is back to where it began the year. I really can't see the problem at this price," said Bruce W. Harting of Salomon Brothers Inc., who retains a "buy" rating on the stock.

"My view is that this is a major overreaction," said David S. Hochstim of Bear, Stearns & Co., who also stayed with a "buy" recommendation.

"Investors aren't giving this company very much credit for doing better than most of their peers, who have suffered significantly and in many cases reported losses because of rapid amortization of servicing income," Mr. Hochstim said.

Loss of Servicing Income

In a period of heavy refinancing, mortgage loans are prepaid at faster than typical rates. Loss of servicing income from those loans is an expense item.

Countrywide has successfully hedged against declining servicing income with money market activities.

Its earnings fell slightly during its third fiscal quarter, ended Nov. 30, from the previous quarter, because rising interest rates dampened the revenue stream from its hedging portfolio.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.