Novastar Loses In Court, May Win Buyer

NovaStar Financial had a mixed day yesterday as reports circulated it may be bought by Mass Mutual, while a court handed down a $46 million judgment against the mortgage lender.

Financial news service TheStreet.com reported Wednesday evening that financial management firm Mass Mutual was considering investing between $200 million and $300 million in NovaStar, the Kansas City-based, Mo.-based subprime mortgage lender and collector. NovaStar announced in April it was considering a buyout.

Fallout in the subprime market has left NovaStar (NYSE: NFI) as one of the few publicly-traded firms remaining in the sector.

NovaStar has a market capitalization of about $290 million with its stock trading at $7.65 midday Thursday. Springfield, Mass.-based Mass Mutual is an insurer and money manager with assets of $450 billion.   

A NovaStar spokesperson said it doesn’t comment on market rumors. Calls to Mass Mutual were not returned.

In the legal case, a jury in the Superior Court of Orange Co., Calif., ruled that NovaStar’s Home Mortgage subsidiary, along with Amerimax Realty Financial Inc. and Business Mortgage Inc., had made false statements about their mortgage rates and terms in ads on the Bankrate.com web site.

The NovaStar spokesperson said the firm would ask the judge to reverse the verdict. If that doesn’t happen, NovaStar would appeal the decision, the spokesperson said. The suit was originally filed in 2002 by American Interbanc Mortgage. NovaStar closed out its Home Mortgage subsidiary in 2006.

A number of similar class action law suits against NovaStar have been consolidated and are pending in the U.S. District Court for the Western District of Missouri, according to NovaStar’s 2007 first quarter report.

NovaStar announced in June it would pay $5.1 million to settle a federal class action suit in Washington State charging that 1,600 clients had paid higher interest rates in the form of hidden fees.