KANSAS CITY, Mo.--(BUSINESS WIRE)--April 19, 2004--NovaStar Financial, Inc. (NYSE: NFI), a residential mortgage lender and portfolio investor, announced Monday that the U.S. Securities and Exchange Commission (SEC) notified NovaStar last Friday that it is conducting an informal inquiry into certain business practices.

"Receiving this notice was not surprising in the aftermath of a widely circulated newspaper story. As the SEC stated in its letter, this inquiry 'should not be construed as an indication by the Commission or its staff that any violations of law have occurred,'" said outside counsel Lanny Davis. "NovaStar is confident that a full review of the facts should put this matter behind it."

An April 12, 2004, Wall Street Journal article reported that NovaStar had compliance issues with certain state licensing agencies. To its knowledge, NovaStar is currently approved and authorized to do business in every state in which it operates.

"We have informed the SEC that we will cooperate fully with this inquiry and will resolve all of its questions," said NovaStar's Chairman and CEO Scott Hartman.

NovaStar engaged a law firm last week to conduct an outside review to confirm that NovaStar is in compliance with all relevant state mortgage licensing requirements.

About NovaStar

NovaStar Financial, Inc. (NYSE: NFI) is one of the nation's leading lenders and investors in residential mortgages. The company specializes in single-family, nonconforming mortgages, involving borrowers whose loan size, credit details or other circumstances fall outside conventional mortgage agency guidelines. A Real Estate Investment Trust (REIT) founded in 1996, NovaStar efficiently brings together the capital markets, a nationwide network of mortgage brokers and American families financing their homes. NovaStar is headquartered in Kansas City, Missouri, and has lending operations and affiliated branches nationwide.

For more information, please reference our website at www.novastarmortgage.com.

Certain matters discussed in this news release may constitute forward-looking statements within the meaning of the federal securities laws that inherently include certain risks and uncertainties. Actual results and the timing of certain events could differ materially from those projected in or contemplated by the forward-looking statements due to a number of factors, including general economic conditions, fluctuations in interest rates, fluctuations in losses due to default on the Company's mortgage loans, the availability of nonconforming residential mortgage loans, the availability and access to financing and liquidity resources, and other risk factors outlined in the Company's 2003 annual report of Form 10-K (available on the Company's website or by request to the Investor Relations Contact). Other factors not presently identified may also cause actual results to differ. We continuously update and revise our estimates based on actual conditions experienced. It is not practicable to publish all such revisions and, as a result, no one should assume that results projected in our contemplated by the forward-looking statements included above will continue to be accurate in the future.

    CONTACT: NovaStar Financial, Inc.
             Media Contact on matters related to the litigation:
             Lanny J. Davis, 202-321-7569
                  or
             Investor Contact:
             Jeff Gentle, 816-237-7424

    SOURCE: NovaStar Financial, Inc.