NovaStar Financial
From Wikipedia, the free encyclopedia
| NovaStar Financial, Inc. | |
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| Type | Public (Pink Sheets: NOVS) |
| Founded | 1996 |
| Headquarters | Kansas City, Missouri, United States |
| Industry | Real Estate Investment Trust |
| Employees | 2,032 |
| Website | www.novastarmortgage.com |
For information about the Belgian band, see Novastar.
Novastar Financial, Inc. originated and serviced "nonconforming" residential loans to borrowers who generally did not qualify for conventional mortgages.
NovaStar retained interests in the nonconforming loans it originated and purchased through its mortgage securities investment portfolio and was taxed as a real estate investment trust. Caught up in the suprime mortgage crisis, NovaStar ceased lending operations at the end of 2007.
Its four operating units were mortgage portfolio management, mortgage lending, loan servicing and branch operations. It no longer originates mortgages, and all servicing rights were sold to Saxon Mortgage Services, Inc.
[edit] Stock Price Volatility
Its stock was selling for $70 until the appearance of a Wall Street Journal story in 2004, which implied that the company's basic business model (making "high-risk loans to people with poor credit") would prove unsustainable (which in light of the 2007 subprime mortgage meltdown, proved to be correct). After that story, the price fell to $30 almost immediately. That figure served as a floor over the next couple of years. It would move upward for a time, only to return to $30. The company had some enthusiastic fans, who made the case that the stock price declines weren't so important as the fact that the company kept paying solid dividends.
During this period, too, the stock of NovaStar became a favorite of short sellers, and has become one of the foci of the controversies over short selling in general -- whether public policy ought to make it more difficult or easier, whether certain reporters and analysts are doing the bidding of the shorts, and so forth.
Liz Moyer of Forbes did a story on the retailization of securities lending in December 2006. NovaStar was her leading example of a stock that gets lent out by the new breed of retail-level lenders. She wrote that she had talked to (unnamed) investors who said they had received an 8% return on lending Novastar stock. That figure indicated an extraordinary amount of demand for shares to short sell.
On February 20, 2007, the company announced its fourth quarter 2006 figures: a loss that quarter of $14.4 million, or 39 cents per share. Analysts polled by Thomson Financial said they had expected a profit of 73 cents a share. This signaled the end of the dividend stream that had so re-assured investors in the past, as the company also announced that it did not expect any profits for the period 2007-2011. On this news the stock price halved overnight from $18 to $9. On March 12, when rumors swilrled that competitor New Century was nearing bankruptcy[1], NovaStar's stock price halved again to $4. As of March 7, 2008, the stock currently trades on the Pink Sheets in the $1-$2/share range, after being delisted from the NYSE[2].
[edit] Legal Action
On March 20, 2007, the law office of Howard G Smith initiated a class action suit on behalf of investors against certain executive officers of NovaStar for inflating the stock price by deceptively reporting the company's financials. On April 2, 2007, the law office of Keller Rohrback initiated a class action suit on behalf of NovaStar 401(k) plan members on similar grounds. A third class action concerning NovaStar's charging of yield spread premiums, fees paid by the lender to the broker which has come under notable criticism, is set to go to trial in May 2007.[3]
In 2006, forty shareholders in NovaStar sued ten Wall Street prime brokers, claiming a scheme to manipulate rhw companies' stock by allowing naked short selling.[4]
