Novastar

NovaStar Financial to cut 275 jobs, cancel stock offering
By DAN MARGOLIES and MARK DAVIS
The Kansas City Star
Bad news continues to batter NovaStar Financial Inc., the Kansas City-based subprime mortgage lender caught in the undertow of a sinking industry.
The company on Tuesday said it was slashing an additional 275 jobs and canceling a stock offering aimed at raising $101 million to enable it to survive ongoing market turmoil.
NovaStar also reported that its auditor, Deloitte & Touche, had raised questions about its ability to survive.
Wall Street hammered NovaStar’s stock, with shares falling as much as 18 percent before closing at $7.16, down nearly 16 percent.
An analyst at investment firm Friedman Billings Ramsey Group said Tuesday that the odds of NovaStar becoming insolvent had “increased significantly.” The analyst, Scott Valentin, also said the eventual liquidation of the company was “highly probable.”
NovaStar, through its spokesman, declined to comment on the speculation swirling around the report.
NovaStar’s president and chief operating officer, Lance Anderson, said in a statement that the company’s goal was “to preserve and maximize” the value of its mortgage portfolio “through this difficult period for the industry” and that it would continue to “consider all necessary or appropriate changes or strategies.”
The layoffs and canceled stock offering were among several steps NovaStar said it was taking or considering as it sought to remain afloat amid the wreckage of the subprime industry.
The company plans to close 12 retail loan offices, laying off 275 employees, which will leave it with about 600 employees overall, including 440 at its headquarters at 8140 Ward Parkway. Last year the company had more than 2,000 employees nationwide.
NovaStar said it would focus for now on managing its portfolio of $15.45 billion in securitized loans, or loans that have been bundled into financial instruments.
Meanwhile, the company said it planned to evaluate “strategic alternatives for its loan servicing business,” which includes the collection of payments from more than 100,000 borrowers. Those alternatives include partnering with other companies, though NovaStar said it “cannot predict the outcome of that process at this point.”
The moves essentially mean that NovaStar is getting out of the lending business, at least for now, and focusing instead on managing its portfolio and servicing existing loans.
NovaStar said it might resume its wholesale business — loans originated through brokers and other third parties — if market conditions improved. The company announced last month that it was suspending new wholesale loans.
“We are pulling back to focus on NovaStar’s core strengths and preserve liquidity,” NovaStar’s chairman and chief executive, Scott Hartman, said in the company’s news release. “In better times for the industry, operating a sizable mortgage banking business to feed loans into the portfolio made strategic sense.
“But the secondary market has deteriorated substantially, so we are modifying our business model and further reducing costs for this difficult environment.”
The subprime mortgage market, which caters to borrowers with risky credit, has been buffeted in recent months by falling housing prices and soaring loan delinquencies. Its woes have spread to the larger credit markets and led to wild gyrations in U.S. and overseas financial markets.
Dozens of mortgage companies have curtailed or stopped lending or found buyers this year. Others have shut their doors or declared bankruptcy.
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To reach Dan Margolies, call (816) 234-4481 or send e-mail to dmargolies@kcstar.com. To reach Mark Davis, call (816) 234-4372 or send e-mail to mdavis@kcstar.com.
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This is not a NovaStar problem. This is a case of a bankrupt...
From what I understand NovaStar is and has been run by a bunch of...
Another KC based company down the tubes»Read More
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