Shares of subprime mortgage lender NovaStar Financial gained nearly 6% to close at $6.78 Monday after the company announced its wholesale unit will resume mortgage originations, which had been suspended the previous Friday. The halt, which was prompted by difficulties the company was having selling mortgages in the secondary market, sent its shares skidding 35% in Monday morning trading on fears the move was a precursor to bankruptcy protection. Secondary-market sales are essential to generate the funds needed to make more loans. NovaStar said late Monday it is adjusting pricing and will be able to fund new mortgages Tuesday. "NovaStar has continued to honor all existing commitments and fund all loans that have already been approved and committed for closing," the company said in a statement. "We believe we can best serve the interests of our shareholders and the mortgage market by making prudent economic decisions on loans we originate in the current market environment." The news follows the adjusting by Friedman, Billings, Ramsey analyst Scott Valentin of his price target on NovaStar to zero. "The likelihood of subprime mortgage market conditions improving in the near term (is) very low," he wrote, adding that "there is a high likelihood NovaStar will be unable to continue operations."
Sources: Reuters, MarketWatch I, II, Dow Jones, Wall Street Journal
Commentary: Novastar Proves Virtues of a Reverse Split • NovaStar: Analyst Lowers Price Target To Zero • Novastar Financial: The Last Refuge of a Corporate Scoundrel
Stocks/ETFs to watch: NFI
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