As its earnings slump, Countrywide Credit Industries' growth strategy has become a topic for debate among analysts.

With volume sagging and price competition rampant, Countrywide reported earnings for fiscal 1995 of $88.4 million, down 51% from the previous year.

In an effort to increase profits in the shrinking market, Countrywide expanded in one area and shrank in another. It fattened its servicing portfolio and reduced production and central office staff by 40%

David S. Loeb, chairman at Countrywide, said the recent turns of the market, should they continue, give reason for optimism at Countrywide. Rates are declining, fixed-rate loans are making a comeback, and many competitors can't get out of the business fast enough - all factors that bode well for Countrywide.

But the jury is still out on the strategy, analysts say.

"It is nice to have a large servicing portfolio, but how much they paid for it and how much it will amortize is important," said Thomas O'Donnell, an analyst with Smith Barney. He said now is a seller's, not a buyer's, market for portfolios because pricing is so rich.

During the year ended Feb. 28, the lender acquired $18 billion in bulk servicing, bringing its portfolio to $113.1 billion.

It also reduced its production staff by 40%. However, this reduction was still below the lender's drop in origination volume, off 47% to $27.9 billion.

Countrywide did not release the cost of acquiring the servicing with its other figures, causing concern for one analyst.

"It is difficult to know what is going on with Countrywide without knowing how much they paid to acquire servicing," said Mr. O'Donnell.

Jonathan Gray, an analyst at Sanford C. Bernstein & Co. in New York, said Countrywide's earnings were what he expected in a year hit hard by a pricing war as a result of a decline in production. He expects Countrywide's outlook to be better in the coming quarter, with rates moving downward and product share moving away from ARM products.

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