Most mortgage stocks seem to be showing signs of fatigue. While business is booming, most companies have felt the sting of heavy prepayments, and some have had to take heavy hits to earnings because of the drain on their portofolios of servicing rights.

Fears of continued runoff appear to be inhibiting investors, and most publicly held mortgage banking companies were well below their highs for the year at the end of the first quarter even as originations continued to soar.

The exceptions were Countrywide Credit Industries, Pasadena, Calif., and aRbor Mortgage Corp., and Arbor Mortgage Corp., Westbury, N.Y., which were all trading near their 1993 highs.

North American Surge

Since the end of the quarter, North American has broken through to a new high of $33 a share, and American Residential Mortgage Corp. has been flirting with a new high as well at about $23 a share.

The run-up by North American, in fact, has led Tom O'Donnell, an analyst with Prudential Securities, to downgrade the stock to "hold." Mr. O'Donnell said he still viewed North American "as among the best-managed, highest-quality mortgage bankers."

But he said the price, $32 a share at the time, had just about reached his target.

"In our view, the market is unlikely to assign a multiple of more than 10 times, near term, since we believe it regards the copany's earning as being heavily dependent on production and therefore potentially volatile."

Seeing Hidden Value

Gareth Plank, a securities analyst with Mabon & Co., San Francisco, said: "North American has impressed investors with their conservative approach. They have kept pretty much all of their assets off the balance sheet."

Almost all of North American's servicing rights came from its own loan orginations and thus are not reflected on its balance sheet.

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Investors may finally we waking up to the company's hidden value, Mr. Plank suggested.

A 'Tug-of-War'

But the industry in general has been suffering from poor recognition of fundamental values by investors, Mr. Plank said.

"Investors who bought into the secular growth story and own mortgage stocks up to their ears and beyond have found them harder to buy for 1994 than it was to buy for 1994 than it was to buy them for 1993," he said.

Commenting on the flat performance of most mortgage stocks, Gary Gordon of Paine-Webber Inc. said: "There's really a tug-of-war among investors on these stocks. In the positive side, they have had super earnings. Also on the positive side, we have a tremendoius refinancing boom, by far the biggest yet.

"The negative side is, there's fear out there that the good times will end. At some point, bonds stop rallying, refis drift away, and all sorts of difficult things happen to the companies. There will be rising costs per loan produced and tougher price competition."

Prospects Seen as Bright

Mr. Gordon said he was enthusiastic about North American's prospects. "Their earnings are good, and they have gained the ability to issue commercial paper, which will save them considerable money.

"They also went to a decentralized pricing system for loans. They had previously charged California rates everywhere, but now offices in other states are charging more."

The PaineWebber analyst said his firm's economist was predicting a 5.5% rate for the 30-year Treasury bond, which could trigger yet anothe refinancing boom. Such a boom, Mr. Gordon said, would principally benefit Countryside Credit Industries, the industry leader, and North American.

For the companies whose shares have not fared well, heavy writedowns of servicing rights have been a major reason. Fleet Mortgage and Margaretten, tow of the recent victims, are near the bottom of their 12-month ranges.

Mr. O'Donnell of Prudential regards Margaretten's shares as "fairly valued at the current price" and is maintaining a "hold" recommendation.

But he pointed out in a recent report that the companyhs servicing portfolio has continued to grow despite heavy prepayments because production of new loans has remained strong.

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