Mortgage banking stocks fell out of bed with a thud last week, as investor concerns about rising interest rates drove the shares of these companies lower.

Through last Thursday, an index of the top six mortgage company stocks was down 7.9% for the preceding five trading days.

This compares to a 4.4% drop for the stocks of top thrifts, and a 3.6% decline for the equities of top banks.

"The nuclear fallout from the bond market has contaminated mortgage- related stocks," said Gareth Plank, an industry analyst in San Francisco with Rodman & Renshaw.

Most of these issues will not be damaged seriously by rising interest rates, he said, "but they come up first in the food chain of interest- sensitive issues."

For example, shares of the Federal National Mortgage Association recently lost several billion dollars in market capitalization in a period of three days after the jump in long-term rates.

Much of the distaste for mortgage sector stocks had been building for some time as rates on 30-year fixed-rate mortgages have risen from about 7% to around 8% in the last month, Mr. Plank said.

But the devastating blow came on March 8, when the Labor Department released an employment report for February showing far higher job creation and lower unemployment than expected. That doused hopes the Federal Reserve would lower interest rates.

The price of the benchmark 30-year Treasury note fell 3.5% that day, and has not recovered from that level. Some experts believe that the long bond's yield - around 6% in January - may even be headed north of 7%.

As rates rise, mortgage bank investors fear that refinancing activity will look less attractive and shrink, Mr. Plank said. This year, refinancings are expected to grab almost a third of mortgage company revenues, Mr. Plank said.

As a result, if refinancings dry up, mortgage companies are left to rely on new home purchases - a highly competitive market.

However, the Rodman analyst called the recent selloff overdone and unmerited.

"Some of the selloff is legitimate reaction to concern over lower volumes," he said. "But the majority of it is a knee-jerk response to what will only have a moderate effect on the business."

The economy is not as robust as people think, so rates will moderate, he said.

Indeed, Livia Asher, a Merrill Lynch & Co. analyst, said the firm's economics department calls the February new-jobs figure an aberration and says there still may be a rate cut later this year.

Few observers are willing to bet these stocks will turn around soon, given the vagaries of interest rates.

But Charlotte Chamberlain of Wedbush Morgan Securities in Los Angeles said these stocks could be poised for a rebound.

"The market is down less than 1% from its highs," she pointed out, "but these stocks are down more than 10%."

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