NovaStar Financial
(NYSE-NFI)
www.novastarmortgage.com
2006 FBR Investor Conference
November 28, 2006
Scott Hartman, CEO
Safe Harbor Statement
Certain matters discussed in this release constitute forward-looking statements within the meaning of the
federal securities laws. Forward-looking statements are those that predict or describe future events and that do
not relate solely to historical matters. Forward-looking statements are subject to risks and uncertainties and
certain factors can cause actual results to differ materially from those anticipated. Some important factors that
could cause actual results to differ materially from those anticipated include: our ability to generate sufficient
liquidity on favorable terms; the size, frequency and structure of our securitizations; interest rate fluctuations
on our assets that differ from our liabilities; increases in prepayment or default rates on our mortgage assets;
changes in assumptions regarding estimated loan losses and fair value amounts; changes in origination and
resale pricing of mortgage loans; 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; 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 expand origination volume while maintaining
an acceptable level of overhead; our ability to adapt to and implement technological changes; the stability of
residual property values; the outcome of litigation or regulatory actions pending against us or other legal
contingencies; 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 period ending December 31, 2005 and our quarterly report on form 10-Q, for the period
ending September 30, 2006. Other factors not presently identified may also cause actual results to differ. This
document speaks only as of its date and we expressly disclaim any duty to update the information herein.
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Business Overview
High margin, nonconforming residential
mortgages
Market size of $400B to $600B
NovaStar has less than 2% market share
Create mortgage securities with good risk-adjusted
returns from our loans through securitization
Use capital markets to price and lay off risks
Interest rate risks – swaps / caps
Credit risk – Deep mortgage insurance to
approximately 55% LTV
NovaStar is structured as a REIT, no corporate
taxes at the REIT level.
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Mortgage Banking
Origination Channels*
Primarily Wholesale (79%)
Independent brokers
Includes correspondent flow
Retail (19%)
Primarily portfolio retention
Oak Street acquisition scheduled to close by
year-end ‘06
Correspondent Bulk (2%)
Opportunistic and price sensitive
*Figures are current run-rate including $100 mil. per month from Oak Street acquisition
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Production
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Historical WAC/Swap
Spreads
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Spreads/Whole loan Prices
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Wholesale COP
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Mortgage Banking
Trends
Reasonable demand for whole-loans but pricing is
a little tighter
Adapting with changes to guidelines
Some originators continue to price low for volume
Gain-on-sale margins continue to be too tight when
adjusted for risks
Premium recapture
Loan buyback
Driving down cost to originate still a focus
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Portfolio Management
World Class Portfolio
Management Team
Mike Bamburg, CIO
Former Partner with Smith Breeden
More than 19 years specializing in analysis and
hedging of mortgage backed securities
Proprietary modeling
Staff includes three PhD's or PhD candidates
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Risks and Risk management
Interest rate/prepayment
Hedging – match duration using swaps and caps
Prepayment/convexity – prepayment penalties
Portfolio is hedged within maximum exposure of 10%
of equity up/down 100 bps
Credit
Geographic diversification
Lender paid deep MI to 50-60% LTV
Common sense U/W and strong quality control
Servicing
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U.S. Housing Price
Appreciation
Source: OFHEO
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Portfolio ROA
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Credit Risk Management
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Portfolio Management
Trends
Generally positive about our portfolio and
the value it has created
Reasonably good demand for our bonds
Credit weaker than in the past
Portfolio is diversified and hedged from a
credit and interest rate perspective
Delinquencies, severities and housing price
data will drive forward assumptions
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