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Trouble in subprime land? It's everywhere, and it's finally catching up with NovaStar (NFI), which has been the focus of this column (for better or worse) for around five years, during which time the stock has just about done a full round trip. It was off nearly 8% yesterday to close at $18.90; it hasn't been this low in nearly three years. I think it's about $3 away, adjusted for splits, from where it was when I first red-flagged it.

Now hear this: A compilation of delinquency data provided by the subprime mortgage provider (you have to pull it all together from its website -- no easy task) shows that delinquencies in all outstanding pools of mortgages NovaStar has packaged and sold, as of the end of January, have leaped to 8.7%, or roughly double from a year earlier -- and a mere 2.83% at the end of 2004.

Subtract out the most recently originated pool and the delinquencies jump to 9.33%. They leap to 11% in pools at least a year old. Those less than a year old, meanwhile, have ratcheted up to 6.54%, or more than triple a year ago. (On all of those, the majority are more than two months late.)

Here's what investors should watch next: According to NovaStar's SEC filings, once it sells these loans, they are subject to recourse by the buyer if "defects" are found in the loan documentation and underwriting process. Historically, NovaStar hasn't had much in the way of recourse, so it hasn't set up any reserves. But it also hasn't seen delinquencies quite like this. (Translation: recourse on even a small fraction of the $12.4 billion of loans the company had sold as of Sept. 30 could cause a big dent in NovaStar's balance sheet.) Not that such recourse will ever happen. Of course, with a 25% dividend yield, investors understand that with unusually high reward comes unusually high risk, right? You can only hope.

NFI 1-yr chart:

Source: NovaStar: Trouble in Subprime Land?