Subprime Lender NovaStar Cuts 37 percent of Workforce

NovaStar Financial, Inc. (NYSE: NFI), a residential mortgage lender and portfolio investor, today announced a reduction in workforce to align its organization and costs with an expected reduction in loan originations. The employment reduction affects approximately 500 persons, about 37 percent of the company’s workforce. Subject to completion of the necessary legal notices and requirements, implementation will begin immediately and conclude during the fourth quarter of 2007. NovaStar continues to meet all loan commitments, and its servicing and portfolio management organizations are not affected by the reduction.

Lance Anderson, President of NovaStar, commented: "During this challenging time in the housing market, NovaStar continues to honor its commitments while taking steps to adapt to industry-wide credit conditions and disruptions in capital markets. Our decision to reduce employment is painful but is required by market conditions and financial discipline. As we disclosed previously, the tighter guidelines and adjusted pricing we have adopted will reduce loan originations until the secondary market shows signs of normalizing. This reduction in force includes stepping back temporarily from pursuing new loans in the wholesale market, a decision we are also seeing among some of our peer companies. For now, we believe this is the right thing to do economically. Our retail channel will be the dominant source of new loans in the coming months. We will follow through on the funding of loans already approved through the wholesale channel."

The reduction in workforce will affect NovaStar’s headquarters in Kansas City and will lead to closing wholesale operation centers in California and Ohio.

David A. Pazgan, who has led the company’s wholesale lending organization since 2004, most recently as President and CEO of NovaStar Mortgage, Inc. (a subsidiary of NovaStar Financial), will leave the company as part of the workforce reduction. "Dave is a dynamic leader who has made many great contributions since joining us 10 years ago. We will miss him, and wish him the very best in his future endeavors," Anderson said. His duties as CEO of NovaStar Mortgage will be assumed by Anderson.

NovaStar estimates that the total pre-tax charge to earnings associated with this plan of termination will range between $17 million and $21 million, which is expected to be incurred in the third quarter of 2007.