NFI Novastar Finl

KANSAS CITY, Mo., Oct. 16 /PRNewswire-FirstCall/ -- NovaStar Financial, Inc. (NYSE:NFI), a residential mortgage portfolio manager, today announced it has entered into a definitive agreement to sell all of its mortgage servicing rights and servicing advances relating to its securitizations to Saxon Mortgage Services, Inc., a Fort Worth, Texas, based servicer of mortgage loans, for approximately $175 million in cash subject to certain adjustments at closing. NovaStar will use the proceeds from this transaction for debt reduction. The agreement is expected to close on November 1, 2007, subject to the satisfaction of various closing conditions, including the receipt of certain third party consents. Saxon is not acquiring the NovaStar servicing platform or any other asset, nor is it assuming any of NovaStar's pre-closing liabilities. Lance Anderson, President and Chief Operating Officer, commented: "This action is expected to reduce debt and risks related to operating capital needs for servicing loans. As we continue to endure a difficult period for the mortgage industry and the secondary market for mortgage loans, our focus is on managing our portfolio of mortgage securities, along with brokering loans with a retail team that continues to serve homeowners." The sale of mortgage servicing rights to Saxon means that collection, customer service and loss mitigation activities on the related loans that NovaStar services will transition to the Saxon organization upon closing of the sale or soon after closing. NovaStar is currently evaluating the impact of this transaction on its servicing organization, including its servicing workforce of approximately 300 persons, but expects that substantial reductions in both its organization and workforce will result. NovaStar and Saxon place a high priority on customer service and providing a seamless transition for homeowners with NovaStar loans. Each homeowner will receive direct communication from the companies explaining the changes in procedures and contact information. Mortgage servicing rights are an asset representing the present value of expected fees that are paid out of securitized loan pools for activities such as loan collection, customer service and loss mitigation. Deutsche Bank Securities Inc. advised NovaStar in this transaction. About NovaStar NovaStar Financial, Inc. (NYSE:NFI) is a specialty finance company that focuses on single-family mortgage loans and mortgage-backed securities. NovaStar is headquartered in Kansas City, Missouri. For more information, please reference our website at http://www.novastarmortgage.com/. This Press Release contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, regarding management's beliefs, estimates, projections, and assumptions with respect to, among other things, our future operations, business plans and strategies, as well as industry and market conditions, all of which are subject to change at any time without notice. Actual results and operations for any future period may vary materially from those projected herein and from past results. Some important factors that could cause actual results to differ materially from those anticipated include: our ability to consummate the sale of substantially all of our mortgage servicing rights and servicing advances; our ability to continue the operation of our mortgage servicing business pending the sale of substantially all of our mortgage servicing rights and servicing advances; our ability to manage and operate our business during this difficult period for the subprime industry; our ability to effectively manage our portfolio and our brokering business in light of recent changes to our business and the subprime industry; our ability to continue as a "going concern"; the effect of our inability to consummate our recently announced transactions with MassMutual and Jefferies on our business; our ability to generate and maintain sufficient liquidity on favorable terms or at all; the impact of the loss of our REIT status as of January 1, 2006, on our financial statements, liquidity and covenants under certain of our financing agreements; our ability to obtain necessary waivers of, or amendments to, covenants contained in our financing agreements; the impact of the sale of our mortgage servicing rights and servicing advances on our financial statements; our ability to recommence our wholesale business or expand our retail business if market conditions improve; our ability to remain listed on the NYSE; our ability to originate and sell loans at a profit and under favorable terms, or at all, under the current circumstances; impairments on our mortgage assets; increases in prepayment or default rates on our mortgage assets; increases in loan repurchase requests; our ability to use our net loss carryforwards and net unrealized built-in losses; changes in the types of products we offer; inability of potential borrowers to meet our underwriting guidelines; changes in assumptions regarding estimated loan losses and fair value amounts; our ability to improve and maintain effective internal control over financial reporting and disclosure controls and procedures in the future; our ability to operate effectively with a reduced workforce; finalization of the amount and terms of any severance provided to terminated employees; finalization of the accounting impact of our previously announced reductions in workforce; events impacting the subprime mortgage industry in general, including events impacting our competitors and liquidity available to the industry; the initiation of margin calls under our credit facilities; the ability of our servicing operations to maintain high performance standards and maintain appropriate ratings from rating agencies; our ability to generate acceptable income while maintaining an acceptable level of overhead; residential property values; interest rate fluctuations on our assets that differ from our liabilities; the outcome of litigation or regulatory actions pending against us or other legal contingencies, including the outcome of the previously disclosed California case; our compliance with applicable local, state and federal laws and regulations or opinions of counsel relating thereto and the impact of new local, state or federal legislation or regulations or opinions of counsel relating thereto or court decisions on our operations; our ability to adapt to and implement technological changes; compliance with new accounting pronouncements; the impact of general economic conditions; and the risks that are from time to time included in our filings with the SEC, including our Annual Report on Form 10-K for the year ended December 31, 2006, our quarterly reports on Form 10-Q for the periods ending March 31, 2007, and June 30, 2007. Other factors not presently identified may also cause actual results to differ. Words such as "believe," "expect," "anticipate," "promise," "plan," "intend" and other expressions or words of similar meanings, as well as future or conditional verbs such as "will," "would," "should," "could," or "may" are generally intended to identify forward-looking statements. This press release speaks only as of its date and we expressly disclaim any duty to update the information herein. DATASOURCE: NovaStar Financial, Inc. CONTACT: Media Relations, Richard M. Johnson, +1-913-649-8885, or Investor Relations, Jeffrey A. Gentle, +1-816-237-7424, both of NovaStar Financial, Inc. Web site: http://www.novastarmortgage.com/

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