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If Friedman Billings Ramsey analyst Scott Valentin is right, the news goes from bad to worse for NovaStar Financial (NFI), a stock that is no stranger to readers of my column or this blog.

In a note to clients today, he reiterated his "underperform" on the subprime lender, saying that he is lowing its price target to zero, reflecting his belief there is a "high likelihood that NFI will be unable to continue operations."

Valentin, who has been early and right with his previous warnings on NovaStar, says "the combination of the recent precedent of companies suspending originations prior to closing and the significant deterioration in subprime market conditions...would result in no value for equity holders given NFI's excessive leverage and precipitous fall in subprime asset values."

On Friday, NovaStar confirmed media reports that it would stop funding new loans originated by wholesale brokers until August 7, "at which time the suspension wold be evaluated."

Today NovaStar said it plans to resume making new loans through its wholesale channel on August 7. In the wake of a bailout refinancing, NovaStar's recently did a 1-for-4 reverse stock split, which recently boosted its shares to around $13. The stock has since done nothing but go down, at one point dipping below $5, bouncing to above $6 after the company's funding update.

NFI 1-yr chart:

Source: NovaStar: Analyst Lowers Price Target To Zero