UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended |
OR | |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period | |
Commission File Number: 001-13533 |
Commission File Number: 001-13533
Maryland | 74-2830661 | |
(State or other jurisdiction of | (I.R.S. Employer Identification | |
1901 W. 47th Place, Suite 105, Westwood, KS 66205 | ||
(Address of principal executive offices) (Zip Code) |
1901 W. 47th Place, Suite 105, Westwood, KS 66205
______________________________________________
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yesx Noo¨
The number of shares of the registrant’sregistrant's common stock outstanding as of November 10, 2000May 11, 2001 was 6,163,741.
NOVASTAR FINANCIAL, INC.
Page | |||||||
PART I | FINANCIAL INFORMATION | ||||||
Item 1. | Consolidated Financial Statements: | ||||||
Balance Sheets | 1 | ||||||
Statements of Operations | 2 | ||||||
Statements of Cash Flows | 3 | ||||||
Notes | 4 | ||||||
Item 2. | Condition and Results of Operations | 6 | |||||
Item | 3. | Quantitative and Qualitative Disclosures about Market Risk | |||||
PART II | OTHER INFORMATION | ||||||
Item 1. | Legal Proceedings | ||||||
Item 2. | Changes in Securities | ||||||
Item 3. | Defaults Upon Senior Securities | ||||||
Item 4. | Submission of Matters to a Vote of Security Holders | ||||||
Item 5. | Other Information | ||||||
Item 6. | Exhibits and Reports on Form 8-K | ||||||
Signatures |
NOVASTAR FINANCIAL, INC. March 31, 2001 December 31, 2000
CONSOLIDATED BALANCE SHEETS Assets Cash and cash equivalents $ 10,533 $ 2,518 Mortgage loans — held-for-sale 99,219 — Mortgage loans — held-in-portfolio 332,766 375,927 Mortgage securities — available-for-sale 76,207 46,650 Accrued interest receivable 8,187 9,151 Advances to and investment in NFI Holding
Corporation — 45,415 Assets acquired through foreclosure 12,835 13,054 Other assets 12,438 1,767 Total assets $ 552,185 $ 494,482 Liabilities and Stockholders' Equity Liabilities: Warehouse borrowings $ 68,266 $ — Asset-backed bonds 318,189 357,437 Mortgage securities repurchase agreements 25,000 25,000 Accounts payable and other liabilities 23,043 3,601 Dividends payable 525 525 Total liabilities 435,023 386,563 Stockholders' equity: Capital stock, $0.01 par value, 50,000,000 shares
authorized: Class B, convertible preferred stock, 4,285,714
shares issued and outstanding, respectively 43 43 Common stock, 5,716,316 and 6,094,595 shares
issued and outstanding, respectively 57 61 Additional paid-in capital 137,325 141,997 Accumulated deficit (35,488 ) (37,976 ) Accumulated other comprehensive income 16,583 10,168 Notes receivable from founders (1,358 ) (6,374 ) Total stockholders' equity 117,162 107,919 Total liabilities and stockholders' equity $ 552,185 $ 494,482
September 30,2000 | December 31, 1999 | |||||
---|---|---|---|---|---|---|
(unaudited) | ||||||
Assets | ||||||
Cash and cash equivalents | $ 2,767 | $ 2,395 | ||||
Mortgage loans | 424,547 | 620,406 | ||||
Mortgage-backed securities—available-for-sale | 41,784 | 6,775 | ||||
Accrued interest receivable | 9,782 | 12,452 | ||||
Advances to and investment in NFI Holding Corporation | 20,617 | 29,208 | ||||
Assets acquired through foreclosure | 15,315 | 16,891 | ||||
Other assets | 1,905 | 2,383 | ||||
Total assets | $516,717 | $690,510 | ||||
Liabilities and Stockholders’ Equity | ||||||
Liabilities: | ||||||
Borrowings | $413,156 | $586,868 | ||||
Dividends payable | 525 | 525 | ||||
Accounts payable and other liabilities | 2,173 | 1,803 | ||||
Total liabilities | 415,854 | 589,196 | ||||
Stockholders’ equity: | ||||||
Capital stock, $0.01 par value, 50,000,000 shares authorized: | ||||||
Class B, convertible preferred stock, 4,285,714 shares issued and outstanding | 43 | 43 | ||||
Common stock, 8,143,407 and 8,130,069 shares issued; 6,206,441 and 7,460,523 shares outstanding, respectively | 81 | 81 | ||||
Additional paid-in capital | 151,197 | 151,173 | ||||
Accumulated deficit | (39,742 | ) | (41,502 | ) | ||
Accumulated other comprehensive income | 3,283 | 242 | ||||
Cost of treasury stock, 1,936,966 and 673,400 shares, respectively | (7,153 | ) | (1,877 | ) | ||
Notes receivable from founders | (6,846 | ) | (6,846 | ) | ||
Total stockholders’ equity | 100,863 | 101,314 | ||||
Total liabilities and stockholders’ equity | $516,717 | $690,510 | ||||
See accompanying notes to consolidated financial statements.
For the Three Months Ended March 31, | ||||||
2001 | 2000 | |||||
Interest income: | ||||||
Mortgage loans | $ | 12,740 | $ | 12,812 | ||
Mortgage securities | 1,350 | 266 | ||||
Total interest income | 14,090 | 13,078 | ||||
Interest expense: | ||||||
Financing on mortgage loans | 8,036 | 9,636 | ||||
Financing on mortgage securities | 480 | 62 | ||||
Interest expense | 8,516 | 9,698 | ||||
Net interest income before provision for credit losses | 5,574 | 3,380 | ||||
Provision for credit losses | (519 | ) | (1,579 | ) | ||
Net interest income | 5,055 | 1,801 | ||||
Prepayment penalty income | 250 | 489 | ||||
Premiums for mortgage loan insurance | (437 | ) | (365 | ) | ||
Loan servicing income (fees) | 6,204 | (696 | ) | |||
Gain on sale of mortgage assets | 5,023 | — | ||||
Other income (loss) | 447 | (2 | ) | |||
Equity in net income of NFI Holding Corporation | — | 699 | ||||
General and administrative expenses: | ||||||
Net fees for other services provided by NovaStar Mortgage, Inc. | — | 3 | ||||
Compensation and benefits | 6,685 | 384 | ||||
Travel and public relations | 1,897 | — | ||||
Office administration | 1,790 | 171 | ||||
Loan expense | 519 | — | ||||
Professional and outside services | 414 | 130 | ||||
Other | 518 | 26 | ||||
Total general and administrative expenses | 11,823 | 714 | ||||
Net income before cumulative effect of a change in accounting principle | 4,719 | 1,212 | ||||
Cumulative effect of a change in accounting principle | (1,706 | ) | — | |||
Net income | 3,013 | 1,212 | ||||
Dividends on preferred shares | (525 | ) | (525 | ) | ||
Net income available to common shareholders | $ | 2,488 | $ | 687 | ||
Basic earnings per share — before cumulative effect of a change in accounting principle | $ | 0.47 | $ | 0.09 | ||
Diluted earnings per share — before cumulative effect of a change in accounting principle | $ | 0.47 | $ | 0.09 | ||
Basic loss per share due to the cumulative effect of a change in accounting principle | $ | (0.17 | ) | $ | — | |
Diluted loss per share due to the cumulative effect of a change in accounting principle | $ | (0.17 | ) | $ | — | |
Basic earnings per share | $ | 0.30 | $ | 0.09 | ||
Diluted earnings per share | $ | 0.30 | $ | 0.09 | ||
Weighted average basic shares outstanding | 5,722 | 7,342 | ||||
Weighted average diluted shares outstanding | 10,162 | 7,352 | ||||
Dividends declared per common share | $ | — | $ | — | ||
See accompanying notes to consolidated financial statements.
NOVASTAR FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited; in thousands)
For the Nine Months Ended September 30, | For the Three Months Ended September 30, | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2000 | 1999 | 2000 | 1999 | |||||||||||||
Interest income on mortgage loans | $ | 34,981 | $ | 52,236 | $ | 10,391 | $ | 15,595 | ||||||||
Interest expense on mortgage loans | 26,881 | 36,059 | 8,240 | 11,206 | ||||||||||||
Net interest income | 8,100 | 16,177 | 2,151 | 4,389 | ||||||||||||
Prepayment penalty income | 1,431 | 2,385 | 448 | 769 | ||||||||||||
Provision for credit losses | (4,004 | ) | (11,499 | ) | (1,212 | ) | (5,634 | ) | ||||||||
Premiums for mortgage loan insurance | (1,009 | ) | (1,339 | ) | (302 | ) | (427 | ) | ||||||||
Loan servicing fees paid to NovaStar Mortgage, Inc. | (1,982 | ) | (3,056 | ) | (599 | ) | (936 | ) | ||||||||
Net portfolio income (loss) | 2,536 | 2,668 | 486 | (1,839 | ) | |||||||||||
Net interest income on mortgage-backed securities | 1,329 | 100 | 602 | 100 | ||||||||||||
Other income (loss) | (453 | ) | 706 | (591 | ) | 322 | ||||||||||
Equity in net income of NFI Holding Corporation | 646 | 1,518 | 787 | 576 | ||||||||||||
General and administrative expenses: | ||||||||||||||||
Net fees for other services provided by (to) NovaStar Mortgage, Inc. | (1,460 | ) | 287 | (1,458 | ) | (169 | ) | |||||||||
Compensation and benefits. | 1,042 | 1,358 | 325 | 421 | ||||||||||||
Professional and outside services | 467 | 546 | 210 | 181 | ||||||||||||
Office administration | 607 | 611 | 206 | 203 | ||||||||||||
Other | 66 | 156 | 23 | 60 | ||||||||||||
Total general and administrative expenses | 722 | 2,958 | (694 | ) | 696 | |||||||||||
Net income (loss) | $ | 3,336 | $ | 2,034 | $ | 1,978 | $ | (1,537 | ) | |||||||
Dividends on preferred shares | $ | (1,575 | ) | $ | (1,081 | ) | $ | (525 | ) | $ | (525 | ) | ||||
Net income (loss) available to common shareholders | $ | 1,761 | $ | 953 | $ | 1,453 | $ | (2,062 | ) | |||||||
Basic earnings (loss) per share | $ | 0.25 | $ | 0.12 | $ | 0.21 | $ | (0.25 | ) | |||||||
Diluted earnings (loss) per share | $ | 0.25 | $ | 0.11 | $ | 0.18 | $ | (0.25 | ) | |||||||
Weighted average basic shares outstanding | 7,087 | 8,130 | 6,900 | 8,130 | ||||||||||||
Weighted average diluted shares outstanding | 7,094 | 8,326 | 11,192 | 8,130 | ||||||||||||
Dividends declared per common share | $ | — | $ | — | $ | — | $ | — | ||||||||
For the Three Months | ||||||||
2001 | 2000 | |||||||
Net cash provided by (used in) operating activities: | $ | (29,100 | ) | $ | 5,486 | |||
Cash flow from investing activities: | ||||||||
Mortgage loan repayments | 32,399 | 59,770 | ||||||
Sales of assets acquired through foreclosure | 8,692 | 6,697 | ||||||
Proceeds from paydowns on available-for-sale securities | 3,557 | 661 | ||||||
Net assets acquired during acquisition of NFI Holding Corporation | 1,242 | — | ||||||
Net change in advance to NFI Holding Corporation | — | (4,936 | ) | |||||
Net cash provided by investing activities | 45,890 | 62,192 | ||||||
Cash flow from financing activities: | ||||||||
Payments on asset-backed bonds | (39,546 | ) | (66,265 | ) | ||||
Change in short-term borrowings | 31,366 | — | ||||||
Proceeds from issuance of capital stock and exercise of equity instruments, net of offering costs | — | 14 | ||||||
Dividends paid on preferred stock | (525 | ) | (525 | ) | ||||
Common stock repurchases | (70 | ) | (952 | ) | ||||
Net cash used in financing activities | (8,775 | ) | (67,728 | ) | ||||
Net increase (decrease) in cash and cash equivalents | 8,015 | (50 | ) | |||||
Cash and cash equivalents, beginning of period | 2,518 | 2,395 | ||||||
Cash and cash equivalents, end of period | $ | 10,533 | $ | 2,345 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Transfer of available-for-sale securities | $ | 25,108 | $ | — | ||||
Cash paid for interest | $ | 8,529 | $ | 9,801 | ||||
Dividends payable | $ | 525 | $ | 525 | ||||
Non-cash activities related to purchase of NFI Holding Corporation: | ||||||||
Operating activities: | ||||||||
Increase in real estate owned | $ | (892 | ) | $ | — | |||
Increase in other assets | $ | (11,132 | ) | $ | — | |||
Decrease in other liabilities | $ | (9,422 | ) | $ | — | |||
Investing activities: | ||||||||
Cash received in purchase | $ | (872 | ) | $ | — | |||
Increase in mortgage loans | $ | (81,733 | ) | $ | — | |||
Decrease in investment in/advances to NFI Holding Corp. | $ | 48,307 | $ | — | ||||
Investing activities: | ||||||||
Increase in borrowings | $ | 36,900 | $ | — | ||||
Decrease in founders' notes receivable | $ | (370 | ) | $ | — | |||
Non-cash financing activities related to founders' notes receivable: | ||||||||
Decrease in founders' notes receivable | $ | (4,611 | ) | $ | — | |||
Increase in additional paid-in capital | $ | 4,611 | $ | — | ||||
See accompanying notes to consolidated financial statements.
For the Ninth Months Ended September 30, | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2000 | 1999 | ||||||||||||
Net cash provided by operating activities | $ 13,945 | $ 23,504 | |||||||||||
Cash flow from investing activities: | |||||||||||||
Mortgage loan repayments | 176,799 | 201,034 | |||||||||||
Sales of assets acquired through foreclosure | 15,295 | 17,542 | |||||||||||
Mortgage loans sold to others | — | 4,900 | |||||||||||
Proceeds from paydowns on mortgage-backed securities | 2,161 | — | |||||||||||
Net change in advances to NFI Holding Corporation | 7,309 | (15,360 | ) | ||||||||||
Purchase of mortgage-backed securities from NFI Holding Corporation | (33,767 | ) | — | ||||||||||
Net cash provided by investing activities | 167,797 | 208,116 | |||||||||||
Cash flow from financing activities: | |||||||||||||
Payments on collateralized mortgage obligations | (185,502 | ) | (236,872 | ) | |||||||||
Change in short-term borrowings | 10,960 | (18,029 | ) | ||||||||||
Net proceeds from issuance of capital stock and exercise of equity instruments | 23 | 29,029 | |||||||||||
Dividends paid on preferred stock | (1,575 | ) | (556 | ) | |||||||||
Dividends paid on common stock | — | (2,845 | ) | ||||||||||
Treasury stock purchases | �� | (5,276 | ) | — | |||||||||
Net cash used in financing activities | (181,370 | ) | (229,273 | ) | |||||||||
Net increase in cash and cash equivalents | 372 | 2,347 | |||||||||||
Cash and cash equivalents, beginning of period | 2,395 | — | |||||||||||
Cash and cash equivalents, end of period | $ 2,767 | $ 2,347 | |||||||||||
Supplemental disclosure of cash flow information: | |||||||||||||
Cash paid for interest | $ 27,048 | $ 36,567 | |||||||||||
Assets acquired through foreclosure | $ 12,136 | $ 22,570 | |||||||||||
Dividends payable | $ 525 | $ 525 | |||||||||||
Issuance of warrants | $ — | $ 350 | |||||||||||
Note 1. Financial Statement Presentation
The consolidated financial statements as of and for the periods ended September 30,March 31, 2001 and 2000 and 1999 are unaudited. In the opinion of management, all necessary adjustments have been made, which were of a normal and recurring nature, necessary for a fair presentation of the balance sheets and results of operations. The consolidated financial statements should be read in conjunction with Management’sManagement's Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements of NovaStar Financial and the notes thereto, included in NovaStar Financial’sFinancial's annual report to shareholders and annual report on Form 10-K for the fiscal year ended December 31, 1999.
NovaStar Financial, Inc. owns 100 percent of the common stock of three special purpose entities — NovaStar Assets Corporation, NovaStar Certificates Financing Corporation and NovaStar Mortgage Funding Corporation. NovaStar Financial formed these entities in connection with the issuance of collateralized mortgage obligations.asset-backed bonds.
The consolidated financial statements of NovaStar Financial include the accounts of these entities. Significant intercompany accounts and transactions have been eliminated in consolidation.
On January 1, 2001, NovaStar Financial ownspurchased 100 percent of the non-voting preferred stock of NFI Holding Corporation (Holding) for which it receives 99 percent of any dividends paid by NFI Holding. The founders of NovaStar Financial own the voting common stock of NFI Holding Corporation (Holding). Prior to January 1, 2001 the Chief Executive Officer and receive 1%Chief Operating Officer of any dividends paid by NFI Holding.NovaStar Financial each owned one-half of these shares. NovaStar Mortgage, Inc., NovaStar Capital,Home Mortgage, Inc., and NovaStar Home Mortgage,Capital, Inc. are wholly owned subsidiaries of NFI Holding. NovaStar Mortgage Funding Corporation II, NovaStar Mortgage Funding Corporation III and NovaStar REMIC Financing Corporation are subsidiaries of NovaStar Mortgage. Prior to January 1, 2001, NovaStar Financial, accounts forInc. owned all of the preferred shares of Holding, which were non-voting and retired on January 1, 2001. Prior to January 1, 2001, NovaStar Financial, Inc. recorded its investment in Holding using the equity method.
NewNote 2. Implementation of Accounting Pronouncements.
During 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". As amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133" and SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities, an amendment of FASB Statement No. 133," SFAS No. 133 standardizes the accounting for derivative instruments, including certain instruments embedded in other contracts, by requiring that an entity recognize those items as assets or liabilities in the balance sheet and measure them at fair value. If certain conditions are met, an entity may elect to designate a derivative instrument either as a cash flow hedge, a fair value hedge or a hedge of foreign currency exposure. Generally, SFAS No. 133 provides for matching the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in therequires derivative instruments to be recorded at their fair value with hedge ineffectiveness recognized in earnings. In addition, the pronouncement requires that the time value of hedge asset or liability that is attributablepurchased options be recorded at fair value as an adjustment directly to the hedge risk or the earnings effect of the hedge forecasted transaction. SFAS No. 137,Accounting for Derivative Instruments and Hedging Activities—Deferral of the Effective Date of FASB Statement No. 133 an amendment of FASB Statement No. 133 was issued in June 1999 and postponed the effective date ofearnings. The Company adopted SFAS No. 133 on January 1, 2001 and recorded a charge to fiscal years beginning after June 15, 2000. Management has reviewed all financial instrumentsearnings of NovaStar Financial and has determined that NovaStar Financial’s$1.7 million. The transition adjustment resulted from adjusting the carrying value of certain interest rate cap agreements areto their face value.
The Company uses derivative instruments under SFAS No. 133. These derivatives are used to hedgewith the objective of hedging interest rate riskrisk. Interest rates on variableliabilities of the Company adjust daily or annually, while interest rates on the Company's assets adjust annually, or not at all. The Company has determined that all of our derivative instruments ( interest rate debtcaps & swaps qualify as cashflow hedges and will be accountedaccounts for as cash flow hedges under SFAS No. 133. Management does not expectthese instruments accordingly. As discussed above, a $1.7 million transition adjustment resulting from the adoption of SFAS No. 133 to have a material impactwas recorded on the financial statementsincome statement as a separate line item. In addition, the Company recorded as additional derivatives loss of $243,000 during the quarter. This amount is included in the amount reported as ""Financing on mortgage loans" on the income statement. The amount of the NovaStar Financial, Inc.
Note 2.3. NovaStar Mortgage Funding Trust Series 2000-1 and 2000-22001-1
On March 31, 2000 and September 28, 2000,29, 2001, NovaStar Mortgage executed a securitization transactionstransaction that, for financial reporting and tax purposes, was treated as a sale. As part of this transaction, NovaStar Mortgage sold $408 million in loans, of which $207 million will settle in the second quarter of 2001. The loans were sold to NovaStar Mortgage Funding Trust Series (NMFT) 2001-1, which issued asset-backed bonds of $415 million. NovaStar Mortgage retained the AAA-rated interest only and subordinated securities that were constructed to allow for accountingissued by NMFT 2001-1, with a carrying value of $25.1 million as sales of loans. DetailsMarch 31, 2001. A gain of these transactions are as follows:
Value of Asset-Backed Bonds Issued | Economic Residual Value as of September 30, 2000 | Value of Collateral Sold | Gain Recognized | |||||
---|---|---|---|---|---|---|---|---|
NMFT 2000-1 | $226 million | $13,750,000 | $229,846,000 | $2,936,000 | ||||
NMFT 2000-2 (A) | $334 million | $20,534,000 | $188,734,000 | $3,584,000 |
$5.0 million was recognized on this transaction.
Item 2. Management’sManagement's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the preceding consolidated financial statements of NovaStar Financial and the notes thereto as well as NovaStar Financial’sFinancial's annual report to shareholders and annual report on Form 10-K for the fiscal year ended December 31, 1999.2000.
Safe Harbor Statement
"Safe Harbor" statement under the Private Securities Litigation Reform Act of 1995: Statements in this discussion regarding NovaStar Financial, Inc. and its business, which are not historical facts, are “forward-looking statements”"forward-looking statements" that involve risks and uncertainties. Certain matters discussed in this quarterlyannual report may constitute forward-looking statements within the meaning of the federal securities laws that inherently include certain risks and uncertainties. Actual results and the time 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 prepayment speeds, fluctuations in losses due to defaults on mortgage loans, the availability of non-conforming residential mortgage loans, the availability and access to financing and liquidity resources, and other risk factors outlined in the annual report on Form 10-K for the fiscal year ended December 31, 1999.2000. Other factors not presently identified may also cause actual results to differ. Management continuously updates and revises these estimates and assumptions based on actual conditions experienced. It is not practicable to publish all revisions and, as a result, no one should assume that results projected in or contemplated by the forward-looking statements will continue to be accurate in the future. Risks and uncertainties, which could cause results to differ from those discussed in the forward-looking statements herein, are listed in the “ Risk Management”"Risk Management" section of the annual report on Form 10-K for the fiscal year ended December 31, 1999.
Basis of Presentation
The consolidated financial statementssubsidiaries of NovaStar Financial, include the financial condition and results of operations of these entities.
Recent Developments
Federal Tax LegislationLegislation.. REITs will be allowed Recently adopted legislation allows a real estate investment trust (REIT) to own directly all of the stock of taxable subsidiaries beginning in the tax year 2001. The value of all taxable subsidiaries of a REIT will be limited to 20% of the total value of the REIT’sREIT's assets. Accordingly, NovaStar Financial expects to acquireacquired all of the common stock of NFI Holding Corporation from Scott Hartman and Lance Anderson inon January 1, 2001. As a result, NFI Holding will become a wholly-owned consolidated subsidiary of NovaStar Financial.
Also, effective beginning with the 2001 tax year, the minimum dividend distributions of a REIT will have to equal 90% of taxable income, down from 95% of taxable income under current law. This provision will also first be effective beginning with the 2001 tax year. These and other federal tax legislation changes and proposals are discussed further in NovaStar Financial’sFinancial's Annual Report on Form 10K under “Federal"Federal Income Tax Consequences”Consequences".
Description of BusinessBusinesses
Business of NovaStar Financial:Investment Portfolio
Operates as a long-term portfolio investor; |
Earnings are generated from return on mortgage securities and spread income on the mortgage loan |
Business of NovaStar Mortgage:Residential Mortgage Lending
Primary customer is the retail mortgage broker who deals with the borrower. NovaStar |
Borrowers generally are individuals or families who do not qualify for agency/conventional lending programs because of a lack of available documentation or previous credit difficulties. |
Loans are financed |
Loans are held for |
Branch Operations
Retail mortgage brokers and their staffs operate under the NovaStar Home Mortgage name and are employees of NovaStar Home Mortgage. | |
Branches operate under a strict set of established policies. | |
Branch can broker loans to any approved investor, including NovaStar Mortgage, Inc. | |
Net operating income for | |
As of March 31, 2001, there were 76 active branches in 31 states operating under the NovaStar Home Mortgage name. |
Financial Condition of NovaStar Financial, Inc. as of September 30, 2000March 31, 2001 and December 31, 19992000
Mortgage Loans. Our balance sheets consistsheet consists primarily of securitized mortgage loans originated bywe have originated. We classify our mortgage loans into two categories: "held-for-sale" and purchased from NovaStar Mortgage, which"held-in-portfolio." A majority of our loans serve as collateral for its collateralized mortgage obligations.asset-backed bonds we have issued and are classified as "held-in-portfolio." The carrying value of "held-in-portfolio" mortgage loans as of September 30, 2000March 31, 2001 was $425$333 million versus $620compared to $376 million as of December 31, 1999. The carrying value2000.
Loans we have originated, but have not yet securitized, are classified as "held-for-sale." We expect to sell these loans outright in third party transactions or in securitization transactions that will be, for tax and accounting purposes, recorded as sales. We use warehouse lines of collateralizedcredit and mortgage obligationsrepurchase agreements to finance our held-for-sale loans.
Premiums are paid on substantially all mortgage loans. Premiums are amortized as a reduction of September 30, 2000 was $402 million compared with $587 million asinterest income over the estimated lives of December 31, 1999. The decline in both balance sheet items is primarily a resultthe assets. Tables 3 and 6 provide information to analyze
the impact of principal paydowns that occurred duringpayments on amortization. To mitigate the first nine monthseffect of 2000.prepayments on interest income from mortgage loans, we generally strive to originate mortgage loans with prepayment penalties.
In periods of decreasing interest rates, borrowers are more likely to refinance their mortgages to obtain a better interest rate. Even though NovaStar Financialin rising rate environments, borrowers tend to repay their mortgage principal balances earlier than is no longer purchasingrequired by the terms of their mortgages. Non-conforming borrowers, as they update their credit rating, are more likely to refinance their mortgage loan to obtain a lower interest rate.
Prepayment rates in Table 6 represent the annualized principal prepayment rate in the most recent one, three and twelve month periods and over the life of the pool of loans. This information has not been presented for held-for-sale loans as we do not expect to own the loans originated from NovaStar Mortgage, NovaStar Financial has been ablefor a period long enough to grow its mortgage asset portfolio by purchasing the residual assets of all NovaStar Mortgage’s securitization transactions. The carrying valueexperience material repayments.
Characteristics of the residual assetsmortgage loans we own are provided in Tables 1 through 8. The operating performance of NovaStar Financial was $42 million asour mortgage loan portfolio, including net interest income, allowances for credit losses and effects of September 30, 2000 compared with $7 million ashedging are discussed under "Results of December 31, 1999. Mortgage loans collateralizing residual assets totaled $526 million as of September 30, 2000 compared with $143 million as of December 31, 2000 bringingOperations" and "Interest Rate/Market Risk." Gains on the total carrying valuesales of mortgage assets managed by NovaStar Financial to nearly $1 billionloans, including impact of securitizations treated as sales, is also discussed under "Results of September 30, 2000 compared with $770 million as of December 31, 1999.
Mortgage Loans. Table 1 is a presentation of loans as of September 30, 2000 and December 31, 1999 and their credit grades. Table 2 is a summary of all mortgage loans owned by NovaStar Financial as of September 30, 2000 and December 31, 1999 by state. These tables also provide details regarding the collateral outstanding on NovaStar Mortgage’s REMIC transactions, which NovaStar Financial owns the residual interests. The REMIC transactions are discussed further in the “Mortgage Loans—Available for Sale” and “Mortgage Loans Sales” sections of this document.
March 31, 2001 | December 31, 2000 | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Credit Grade | Allowed Mortgage Lates (A) | Maximum Loan- to-value | Current Principal | Weighted Average Coupon | Weighted Average Loan-to- Value | Current Principal | Weighted Average Coupon | Weighted Average Loan-to- Value | ||||||||
Held-for-sale: | ||||||||||||||||
AAA | 0 x 30 | 97(B) | $ | 16,887 | 10.03 | % | 75.8 | % | $ | 15,696 | 9.83 | % | 73.8 | % | ||
AA | 0 x 30 | 95 | 27,665 | 10.41 | 83.1 | 25,335 | 10.07 | 81.4 | ||||||||
A | 1 x 30 | 90 | 15,403 | 10.40 | 78.8 | 15,209 | 10.35 | 80.3 | ||||||||
A- | 2 x 30 | 90 | 11,753 | 11.02 | 75.4 | 6,812 | 10.27 | 80.4 | ||||||||
B | 3 x 30, 1x 60,5 x 30, 2 x 60 | 85 | 8,779 | 11.21 | 77.9 | 5,719 | 10.54 | 78.0 | ||||||||
C | 1 x 90 | 75 | 1,721 | 11.63 | 69.5 | 740 | 10.77 | 69.7 | ||||||||
D | 6 x 30, 3 x 60,2 x 90 | 65 | — | — | — | — | — | — | ||||||||
Other | Varies | 97 | 16,106 | 11.95 | 93.8 | 7,823 | 11.95 | 93.8 | ||||||||
$ | 98,314 | 10.76 | 81.3 | $ | 77,334 | 10.27 | 80.5 | |||||||||
Held-in-portfolio: | ||||||||||||||||
AA | 0 x 30 | 95 | $ | 50,687 | 10.09 | % | 82.5 | % | $ | 56,463 | 10.17 | % | 82.6 | % | ||
A | 1 x 30 | 90 | 134,069 | 10.57 | 79.5 | 152,621 | 10.66 | 79.4 | ||||||||
A- | 2 x 30 | 90 | 78,197 | 11.28 | 81.7 | 88,617 | 11.30 | 81.7 | ||||||||
B | 3 x 30, 1x 605 x 30, 2 x 60 | 85 | 44,919 | 11.81 | 78.2 | 51,001 | 11.80 | 78.1 | ||||||||
C | 1 x 90 | 75 | 20,695 | 12.25 | 73.0 | 22,902 | 12.30 | 72.8 | ||||||||
D | 6 x 30, 3 x 60, 2 x 90 | 65 | 3,999 | 13.06 | 63.9 | 4,268 | 13.13 | 63.8 | ||||||||
$ | 332,566 | 10.97 | 79.7 | $ | 375,872 | 11.02 | 79.7 | |||||||||
(A) | Represents the number of times a prospective borrower is allowed to be late more than 30, 60 or 90 days. For instance, a 3x30, 1x60 category would afford the prospective borrower to be more than 30 days late on three separate occasions and 60 days late no more than one time. | |
(B) | 97% on fixed-rate purchases; all other maximum of 95%. |
Table 2—Mortgage Loans
Geographic Concentration
Percent Current Principal as of March 31, 2001
Held-for-sale | Held-in-portfolio | |||
---|---|---|---|---|
Collateral Location | ||||
California | 16 | 13 | ||
Florida | 15 | % | 16 | % |
Michigan | 7 | 3 | ||
Nevada | 6 | 4 | ||
Ohio | 6 | 3 | ||
Tennessee | 4 | 4 | ||
Oregon | 3 | 5 | ||
Washington | 3 | 6 | ||
Texas | 2 | 5 | ||
All other states | 38 | 41 | ||
Total | 100 | % | 100 | % |
Table 3 — Carrying Value of Mortgage Loans by Product/Type
(in thousands)
Product/Type | March, 31, 2001 | December 31, 2000 | ||||
Held-in-portfolio: | ||||||
Two and three-year fixed | $ | 139,198 | $ | $166,627 | ||
Six-month LIBOR and one-year CMT | 20,244 | 23,428 | ||||
30/15-year fixed and balloon | 173,124 | 185,817 | ||||
Outstanding principal | 332,566 | 375,872 | ||||
Premium | 6,832 | 7,745 | ||||
Allowance for credit losses | (6,632 | ) | (7,690 | ) | ||
Carrying Value | $ | $332,766 | $ | $375,927 | ||
Carrying value as a percent of principal | 100.06 | % | 100.01 | % | ||
Held-for-sale: | ||||||
Two and three-year fixed | $ | $72,309 | $ | $ 54,500 | ||
Six-month LIBOR and one-year CMT | — | — | ||||
30/15-year fixed and balloon | 26,005 | 22,834 | ||||
Outstanding principal | 98,314 | 77,334 | ||||
Premium | 1,098 | 997 | ||||
Allowance for credit losses | (193 | ) | (254 | ) | ||
Carrying Value | $ | 99,219 | $ | 78,077 | ||
Carrying value as a percent of principal | 100.92 | % | 100.96 | % | ||
Table 4—Mortgage Credit Analysis - Held-in-portfolio Loans
March 31, 2001
(dollars in thousands)
Credit Grade | Original Balance | Current Principal | Weighted Average Loan- to-Value Ratio | Defaults as Percent of Original Principal | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
60-89 days | 90 days and greater | Foreclosure and REO | Total | |||||||||||
Novastar Home Equity Series 1997-1: | ||||||||||||||
A | $ 117,904 | $20,212 | 75.6 | — | 2.0 | 5.6 | 7.6 | |||||||
A– | 73,499 | 13,841 | 77.8 | — | 5.1 | 9.0 | 14.1 | |||||||
B | 53,812 | 8,459 | 73.0 | 1.33 | — | 10.8 | 12.1 | |||||||
C | 23,065 | 3,364 | 71.0 | 0.86 | 22.9 | 11.4 | 35.2 | |||||||
D | 9,021 | 1,315 | 69.4 | — | — | 20.7 | 20.7 | |||||||
NovaStar Home Equity Series 1997-2: | ||||||||||||||
AA | $ 3,153 | $ 378 | 86.5 | — | — | — | — | |||||||
A | 104,582 | 21,378 | 78.2 | 0.73 | 0.7 | 10.0 | 11.4 | |||||||
A– | 63,660 | 11,979 | 82.2 | 4.29 | 4.1 | 6.1 | 14.5 | |||||||
B | 36,727 | 6,914 | 78.5 | 1.74 | 0.7 | 16.2 | 18.7 | |||||||
C | 11,354 | 2,973 | 69.9 | — | 2.1 | 5.1 | 7.2 | |||||||
D | 1,529 | 512 | 59.7 | 8.86 | — | 7.0 | 15.9 | |||||||
NovaStar Home Equity Series 1998-1: | ||||||||||||||
AA | $ 59,213 | 19,213 | 83.4 | 4.06 | 1.5 | 8.6 | 14.2 | |||||||
A | 113,457 | 39,033 | 80.7 | 0.94 | 0.5 | 9.2 | 10.6 | |||||||
A– | 63,100 | 21,753 | 81.8 | 1.74 | 4.1 | 9.8 | 15.7 | |||||||
B | 38,249 | 11,374 | 78.3 | 0.67 | 0.6 | 13.1 | 14.4 | |||||||
C | 22,908 | 6,501 | 75.5 | — | 2.1 | 13.9 | 16.0 | |||||||
C– | 123 | 121 | 80.0 | — | — | — | — | |||||||
D | 5,493 | 1,193 | 64.0 | — | 17.2 | 10.9 | 28.0 | |||||||
NovaStar Home Equity Series 1998-2: | ||||||||||||||
AA | $ 64,851 | 30,315 | 81.9 | 0.68 | 1.1 | 4.5 | 6.3 | |||||||
A | 113,557 | 54,006 | 83.2 | 1.75 | 3.0 | 10.5 | 15.2 | |||||||
A– | 70,399 | 30,360 | 80.7 | 0.47 | 0.6 | 8.4 | 9.5 | |||||||
B | 40,818 | 18,431 | 80.1 | 1.26 | 6.0 | 17.0 | 24.2 | |||||||
C | 22,335 | 7,922 | 72.8 | 0.32 | 1.8 | 14.8 | 16.9 | |||||||
D | 2,951 | 1,019 | 63.6 | — | — | 23.9 | 23.9 | |||||||
Total | $1,115,760 | $332,566 | ||||||||||||
Loans Repurchased From Trusts | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Cumulative Losses As Reported | Loss Amount | As a % of Original Balance | Total Losses | ||||||||
NHES 1997-1 | 1.69 | % | $3,503 | 1.27 | % | 2.96 | % | ||||
NHES 1997-2 | 1.91 | 6,068 | 2.73 | 4.63 | |||||||
NHES 1998-1 | 1.54 | 7,255 | 2.40 | 3.94 | |||||||
NHES 1998-2 | 1.34 | 1,807 | 0.57 | 1.92 |
Issue Date | Original Principal | Current Principal | Premium | Percent with Prepayment Penalty | Coupon | Remaining Prepayment Penalty Period (in years) for Loans with Penalty | Constant Prepayment Rate (Annual Percent) | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Three- month | Twelve- Month | Life | |||||||||||||||||||||||
As of March 31, 2001 Held-in-portfolio — serving as collateral for NovaStar Home Equity Series asset backed bonds: | |||||||||||||||||||||||||
Series 1997-1 | October 1, 1997 | $ | 277,301 | $ | 47,191 | $ | 2,173 | 26 | % | 11.51 | % | 0.25 | |||||||||||||
Series 1997-2 | December 11, 1997 | 221,005 | 44,134 | 891 | 19 | 11.32 | 0.28 | 40 | 39 | 40 | |||||||||||||||
Series 1998-1 | April 30, 1998 | 302,543 | 99,188 | 1,620 | 22 | 10.87 | 0.40 | 46 | 45 | 37 | |||||||||||||||
Series 1998-2 | August 18, 1998 | 314,911 | 142,053 | 2,148 | 52 | 10.50 | 0.69 | 41 | 41 | 31 | |||||||||||||||
Total | $ | 1,115,760 | $ | 332,566 | $ | 6,832 | 35 | % | 10.86 | % | 0.48 | 0.49 | |||||||||||||
Held-for-sale: | $ | 98,314 | $ | 1,098 | 79 | % | 10.76 | % | 3.01 | Not meaningful | |||||||||||||||
As of December 31, 2000 Held-in-portfolio — serving as collateral for NovaStar Home Equity Series asset backed bonds: | |||||||||||||||||||||||||
Series 1997-1 | October 1, 1997 | $ | 277,301 | $ | 52,282 | $ | 2,494 | 25 | % | 11.80 | % | 0.30 | 40 | 39 | 40 | ||||||||||
Series 1997-2 | December 11, 1997 | 221,005 | 53,727 | 1,040 | 16 | 11.55 | 0.28 | 46 | 45 | 37 | |||||||||||||||
Series 1998-1 | April 30, 1998 | 302,543 | 114,367 | 1,877 | 33 | 11.03 | 0.46 | 41 | 41 | 31 | |||||||||||||||
Series 1998-2 | August 18, 1998 | 314,911 | 155,596 | 2,334 | 60 | 10.57 | 0.85 | 33 | 35 | 25 | |||||||||||||||
Total | $ | 1,115,760 | $ | 375,972 | $ | 7,745 | 40 | % | 11.02 | % | 0.57 | ||||||||||||||
Held-for-sale: | $ | 77,334 | $ | 997 | 81 | % | 10.27 | % | 3.19 | Not meaningful | |||||||||||||||
Mortgage Securitiesavailable-for-sale. During 2001, 2000 and 1999, $211 million, $570 million, and $165 million in loans were pooled in securitization transactions. These transactions were treated as sales for accounting and tax purposes. We service the loans sold in these securitizations and we retained the AAA-rated, interest-only and other subordinated securities issued in the securitizations. Under the section “Mortgage Loan Sales” we discuss the details of the loan securitization transactions. | |
As of March 31, 2001 and December 31, 2000, the carrying value of mortgage securities was $76.2 million and $46.6 million, respectively. This value represents the present value of the securities’ cash flows that we expect to receive over their lives, considering estimated prepayment speeds and credit losses of the underlying loans, discounted at an appropriate risk-adjusted market rate of return. The cash flows are realized over the life of the loan collateral as cash distributions are received from the trust that manages the collateral. In estimating the fair value of our mortgage securities, management must make assumptions regarding the future performance and cash flow of the mortgage loans collateralizing the securities. These estimates are based on management’s judgements about the nature of the loans. We believe the value of the securities is fair, but can provide no assurance that future prepayment and loss experience or changes in the required market discount rate will not require write-downs of the residual asset. Write-downs would reduce income of future periods. Table 7 summarizes our mortgage securities and the underlying collateral and senior asset-backed bonds. Table 8 provides a summary of the critical assumptions used in estimating the cash flows of the collateral and the resulting estimated fair value of the mortgage securities. |
Estimated Fair Value of Mortgage Securities | Asset-Backed Bonds | Mortgage Loans | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Remaining Principal | Interest Rate | Remaining Principal | Weighted Average | |||||||||
Coupon | Estimated Months to Call | |||||||||||
March, 31, 2001 | ||||||||||||
NMFT 1999-1 | $ 5,900 | $ 85,291 | 5.66 | $ 88,360 | 10.60 | 54 | ||||||
NMFT 2000-1 | 16,500 | 198,199 | 4.63 | 202,017 | 10.20 | 61 | ||||||
NMFT 2000-2 | 28,700 | 317,685 | 4.76 | 323,603 | 10.60 | 62 | ||||||
NMFT 2001-1 | 25,107 | 413,082 | 5.31 | 209,502 | 10.54 | 69 | ||||||
Total | $76,207 | $1,014,257 | $823,482 | |||||||||
December 31, 2000 | ||||||||||||
NMFT 1999-1 | $ 6,900 | $ 96,521 | 6.23 | $103,968 | 10.67 | 57 | ||||||
NMFT 2000-1 | 14,950 | 210,261 | 6.11 | 216,216 | 10.21 | 64 | ||||||
NMFT 2000-2 | 24,800 | 328,025 | 6.12 | 333,865 | 10.61 | 65 | ||||||
Total | $46,650 | $ 634,807 | $654,049 | |||||||||
September 30, 2000 | December 31, 1999 | |||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Credit Grade | Allowed Mortgage Lates (A) | Maximum Loan-to- value | Current Principal | Weighted Average Coupon | Weighted Average Loan-to- value | Current Principal | Weighted Average Coupon | Weighted Average Loan-to- value | ||||||||||||||||||||
Retained loans collateralizing asset-backed bonds: | ||||||||||||||||||||||||||||
AA | 0 x 30 | 95 | $ | 62,099 | 10.11 | % | 82.8 | % | $ | 85,476 | 9.50 | % | 83.2 | % | ||||||||||||||
A | 1 x 30 | 90 | 170,903 | 10.61 | 79.3 | 244,187 | 10.06 | 80.1 | ||||||||||||||||||||
A- | 2 x 30 | 90 | 100,568 | 11.18 | 81.8 | 149,248 | 10.45 | 81.8 | ||||||||||||||||||||
B | 3 x 30, 1 x 60 | 85 | 59,056 | 11.68 | 78.0 | 89,477 | 10.86 | 78.4 | ||||||||||||||||||||
5 x 30, 2 x 60 | ||||||||||||||||||||||||||||
C | 1 x 90 | 75 | 26,353 | 12.11 | 72.8 | 42,766 | 11.35 | 72.5 | ||||||||||||||||||||
D | 6 x 30, 3 x 60, | 65 | 5,004 | 12.95 | 63.4 | 7,668 | 12.16 | 62.1 | ||||||||||||||||||||
2 x 90 | ||||||||||||||||||||||||||||
Total on balance sheet | $ | 423,983 | 10.94 | % | 79.6 | % | $ | 618,822 | 10.31 | % | 80.0 | % | ||||||||||||||||
March 31, 2001 | December 31, 2000 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
NovaStar Mortgage Funding Trust Series: | 1999-1 | 2000-1 | 2000-2 | 2001-1 | 1999-1 | 2000-1 | 2000-2 | |||||||
Constant prepayment rate (%). | 29 | 30 | 30 | 29 | 32 | 32 | 32 | |||||||
Discount rate | 16.5 | 14.8 | 15.0 | 20.0 | 16.5 | 14.8 | 15.0 | |||||||
As a percent of mortgage loan principal: | ||||||||||||||
Delinquent loans (30 days and greater) | 17.1 | 5.8 | 2.5 | — | 17.0 | 5.7 | 1.1 | |||||||
Loans in foreclosure | 5.3 | 1.8 | 1.0 | — | 5.5 | 1.6 | 0.3 | |||||||
Real Estate Owned | 5.6 | 1.3 | 0.1 | — | 4.2 | 0.1 | — | |||||||
Cumulative losses | 1.2 | — | — | — | 1.0 | — | — |
September 30, 2000 | December 31, 1999 | ||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Credit Grade | Allowed Mortgage Lates (A) | Maximum Loan-to- value | Current Principal | Weighted Average Coupon | Weighted Average Loan-to- value | Current Principal | Weighted Average Coupon | Weighted Average Loan-to- value | |||||||||||||||
Sold loans collateralizing asset- backed bonds: | |||||||||||||||||||||||
AAA | 0 x 30 | 97 | (B) | $115,453 | 9.69 | % | 80.8 | % | $ 3,474 | 9.18 | % | 80.7 | % | ||||||||||
AA | 0 x 30 | 95 | 136,895 | 10.17 | 83.6 | 27,236 | 9.47 | 84.8 | |||||||||||||||
A | 1 x 30 | 90 | 106,876 | 10.39 | 81.2 | 43,119 | 9.86 | 83.1 | |||||||||||||||
A- | 2 x 30 | 90 | 75,505 | 10.49 | 81.4 | 35,311 | 10.09 | 83.1 | |||||||||||||||
B | 3 x 30, 1x 60 | 85 | 39,052 | 10.97 | 79.3 | 19,612 | 10.59 | 79.7 | |||||||||||||||
5 x 30, 2 x 60 | |||||||||||||||||||||||
C | 1 x 90 | 75 | 16,180 | 11.50 | 70.4 | 11,405 | 11.09 | 71.9 | |||||||||||||||
D | 6 x 30, 3 x 60, | 65 | 2,071 | 12.29 | 70.0 | 3,171 | 12.16 | 62.1 | |||||||||||||||
2 x 90 | |||||||||||||||||||||||
Other | Varies | 97 | 36,525 | 11.42 | 92.6 | — | — | — | |||||||||||||||
Total off balance sheet | $528,557 | 10.35 | % | 82.0 | % | $143,328 | 10.08 | % | 81.5 | % | |||||||||||||
March 31, 2001 | December 31, 2000 | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Credit Grade | Allowed Mortgage Lates (A) | Maximum Loan- to-value | Current Principal | Weighted Average Coupon | Weighted Average Loan-to- Value | Current Principal | Weighted Average Coupon | Weighted Average Loan-to- Valu e | |||||||||||||
AAA | 0 x 30 | 97(B | ) | $165,688 | 9.74 | % | 80.9 | % | $143,673 | 9.71 | % | 80.9 | % | ||||||||
AA | 0 x 30 | 95 | 231,580 | 10.26 | 83.6 | 175,068 | 10.25 | 83.5 | |||||||||||||
A | 1 x 30 | 90 | 153,662 | 10.53 | 81.3 | 130,027 | 10.54 | 81.2 | |||||||||||||
A– | 2 x 30 | 90 | 102,547 | 10.70 | 78.1 | 86,660 | 10.65 | 81.3 | |||||||||||||
B | 3 x 30, 1x 60 5 x 30, 2 x 60 | 85 | 61,713 | 11.05 | 69.7 | 44,487 | 11.16 | 79.3 | |||||||||||||
C | 1 x 90 | 75 | 18,708 | 11.71 | 69.7 | 18,398 | 11.69 | 70.1 | |||||||||||||
D | 6 x 30, 3 x 60, 2 x 90 | 65 | 1,336 | 12.67 | 61.6 | 1,568 | 12.69 | 61.6 | |||||||||||||
Other | Varies | 97 | 88,248 | 11.57 | 93.0 | 54,168 | 11.44 | 92.7 | |||||||||||||
$823,482 | 10.50 | $654,049 | |||||||||||||||||||
(A) | Represents the number of times a prospective borrower is allowed to be late more than 30, 60 or 90 days. For instance, a 3x30, 1x60 category would afford the prospective borrower to be more than 30 days late on three separate occasions and 60 days late no more than one time. |
(B) | 97% on fixed-rate purchases; all other maximum of 95%. |
Retained loans collateralizing asset- backed bonds—on balance sheet | Sold loans collateralizing asset-backed bonds—off balance sheet | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
September 30, 2000 | December 31, 1999 | September 30, 2000 | December 31, 1999 | |||||||||
Collateral Location | ||||||||||||
Florida | 15 | % | 14 | % | 16 | % | 21 | % | ||||
California | 14 | 16 | 10 | 7 | ||||||||
Washington | 6 | 7 | 4 | 4 | ||||||||
Texas | 5 | 5 | 3 | 6 | ||||||||
Nevada | 4 | 4 | 6 | 4 | ||||||||
Oregon | 4 | 5 | 2 | 1 | ||||||||
Tennessee | 4 | 3 | 6 | 5 | ||||||||
Michigan | 3 | 3 | 8 | 5 | ||||||||
Ohio | 3 | 3 | 6 | 4 | ||||||||
All other states | 42 | 40 | 39 | 43 | ||||||||
Total | 100 | % | 100 | % | 100 | % | 100 | % | ||||
Florida | 14 | % | |
California | 11 | ||
Michigan | 9 | ||
Nevada | 6 | ||
Ohio | 6 | ||
Tennessee | 5 | ||
Washington | 5 | ||
Texas | 3 | ||
Oregon | 3 | ||
All other states | 38 | ||
Total | 100 | % | |
Product/Type | September 30, 2000 | December 31, 1999 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Retained loans collateralizing asset-backed bonds— on balance sheet: | |||||||||||||
Two and three-year fixed. | $201,440 | $343,193 | |||||||||||
Six-month LIBOR and one-year CMT | 27,164 | 43,178 | |||||||||||
30/15-year fixed and other | 195,379 | 232,451 | |||||||||||
Outstanding principal | 423,983 | 618,822 | |||||||||||
Premium | 8,696 | 12,689 | |||||||||||
Allowance for credit losses | (8,132 | ) | (11,105 | ) | |||||||||
Carrying Value | $424,547 | $620,406 | |||||||||||
Carrying value as a percent of principal | 100.13 | % | 100.26 | % | |||||||||
Sold loans collateralizing asset-backed bonds— off balance sheet: | |||||||||||||
Two and three-year fixed. | $357,210 | $ 78,238 | |||||||||||
Six-month LIBOR and one-year CMT | 2,864 | 5,052 | |||||||||||
30/15-year fixed and other | 168,483 | 60,038 | |||||||||||
Outstanding principal | $528,557 | $143,328 | |||||||||||
Mortgage securities retained. | $ 41,784 | $ 6,775 | |||||||||||
Product/Type | March, 31, 2001 | December 31, 2000 | ||
---|---|---|---|---|
Two and three-year fixed | $595,077 | $465,976 | ||
Six-month LIBOR and one-year CMT | 2,876 | 2,492 | ||
30/15-year fixed and balloon | 225,529 | 185,581 | ||
Outstanding principal | $823,482 | $654,049 | ||
Mortgage securities retained | $ 76,207 | $ 46,650 | ||
Issue Date | Original Principal | Current Principal | Percent with Prepayment Penalty | Coupon | Remaining Prepayment Penalty Period (in years) for Loans with Penalty | Constant Prepayment Rate (Annual Percent) | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Three- month | Twelve- Month | Life | ||||||||||||||||||
March 31, 2001 NovaStar Mortgage Funding Trust Series: | ||||||||||||||||||||
1999-1 | January 29, 1999 | $164,995 | $ 88,360 | 64 | 10.61 | % | 1.11 | 37 | 33 | 24 | ||||||||||
2000-1 | March, 31, 2000 | 230,138 | 202,017 | 94 | 10.21 | 2.20 | 20 | 12 | 11 | |||||||||||
2000-2 | September 28, 2000 | 339,688 | 323,603 | 91 | 10.60 | 2.28 | 11 | — | 8 | |||||||||||
2001-1 | March 29, 2001 | 209,502 | 209,502 | 87 | 10.57 | 2.50 | — | — | 8 | |||||||||||
Total | $944,323 | $823,482 | 88 | % | 10.50 | % | 2.19 | |||||||||||||
December 31, 2000 NovaStar Mortgage Funding Trust Series: | ||||||||||||||||||||
1999-1 | January 29, 1999 | $164,995 | $103,968 | 60 | 10.66 | 1.23 | 38 | 28 | 21 | |||||||||||
2000-1 | March, 31, 2000 | 230,138 | 216,216 | 94 | 10.03 | 2.43 | 10 | — | 8 | |||||||||||
2000-2 | September 28, 2000 | 339,502 | 333,865 | 90 | 10.57 | 2.49 | 5 | — | 5 | |||||||||||
Total | $734,635 | $654,049 | 70 | % | 10.66 | % | 1.65 | |||||||||||||
Credit Grade | Original Balance | Current Principal | Weighted Average Loan- to-Value Ratio | Defaults as Percent of Original Principal | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
60–89 days | 90 days and greater | Foreclosure and REO | Total | |||||||||||
Total NovaStar Mortgage Funding Trust Series 1999-1: | ||||||||||||||
AAA | $ 4,024 | $ 2,746 | 80.0 | — | — | 2.3 | 2.3 | |||||||
AA | 30,772 | 17,175 | 85.1 | — | — | 5.8 | 5.8 | |||||||
A | 50,693 | 27,383 | 82.3 | 0.7 | 0.62 | 10.9 | 12.2 | |||||||
A– | 38,953 | 20,739 | 82.8 | 1.6 | 2.53 | 11.6 | 15.8 | |||||||
B | 23,135 | 12,078 | 79.7 | 2.3 | 6.27 | 15.0 | 23.6 | |||||||
C | 12,959 | 6,931 | 71.9 | 1.2 | 3.99 | 22.6 | 27.7 | |||||||
C– | 47 | 46 | 49.0 | — | — | — | — | |||||||
D | 4,412 | 1,262 | 61.6 | — | — | 32.5 | 32.5 | |||||||
NovaStar Mortgage Funding Trust Series 2000-1: | ||||||||||||||
AAA | $ 85,222 | $ 73,377 | 80.6 | 0.2 | 0.31 | 2.8 | 3.2 | |||||||
AA | 55,874 | 49,834 | 82.9 | 0.6 | 0.34 | 2.2 | 3.1 | |||||||
A | 36,422 | 32,781 | 80.2 | 0.2 | 0.77 | 3.2 | 4.1 | |||||||
A– | 23,329 | 21,101 | 80.6 | 3.0 | — | 6.4 | 9.4 | |||||||
B | 13,089 | 10,950 | 80.4 | 0.8 | — | 11.2 | 12.0 | |||||||
C | 5,922 | 4,733 | 68.9 | 0.9 | — | 7.0 | 7.9 | |||||||
C– | 335 | 238 | 51.7 | — | — | — | — | |||||||
D | 51 | 50 | 58.0 | — | — | — | — | |||||||
Other | 9,894 | 8,968 | 91.9 | — | — | 4.1 | 4.1 | |||||||
NovaStar Mortgage Funding Trust Series 2000-2: | ||||||||||||||
AAA | $ 57,846 | $ 54,117 | 81.6 | 0.3 | — | 0.1 | 0.4 | |||||||
AA | 103,454 | 100,014 | 83.3 | 0.4 | 0.08 | 1.2 | 1.7 | |||||||
A | 60,735 | 56,857 | 81.4 | 0.1 | — | 1.8 | 1.9 | |||||||
A– | 39,939 | 38,547 | 81.1 | — | 0.43 | 1.9 | 2.3 | |||||||
B | 19,843 | 19,286 | 76.6 | — | — | 1.1 | 1.1 | |||||||
C | 4,275 | 3,610 | 67.4 | 1.4 | — | — | 1.4 | |||||||
C– | 388 | 387 | 64.4 | — | — | — | — | |||||||
Other | 53,208 | 50,784 | 92.9 | — | — | 1.0 | 1.0 | |||||||
NovaStar Mortgage Funding Trust Series 2001-1: | ||||||||||||||
AAA | $ 34,480 | $ 34,480 | 80.5 | — | — | — | — | |||||||
AA | 64,807 | 64,807 | 84.1 | — | — | — | — | |||||||
A | 36,217 | 36,217 | 81.4 | — | — | — | — | |||||||
A– | 22,869 | 22,869 | 79.7 | — | — | — | — | |||||||
B | 20,058 | 20,058 | 77.5 | 0.3 | — | — | 0.3 | |||||||
C | 3,003 | 3,003 | 68.3 | — | — | 1.0 | 1.0 | |||||||
C– | 134 | 134 | 85.1 | — | — | — | — | |||||||
Other | 28,002 | 28,002 | 93.5 | — | — | — | 0.3 |
Current Principal | Premium | Percent with Prepayment Penalty | Weighted Average | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Coupon | Loan-to- value | Remaining Prepayment Penalty Period (in years) - Loans with Penalty | |||||||||||||
As of September 30, 2000 | |||||||||||||||
Retained loans collateralizing asset-backed bonds: | |||||||||||||||
NHES 1997-1 | $ 58,054 | $2,679 | 23 | % | 11.61 | % | 74.9 | % | 0.33 | ||||||
NHES 1997-2 | 63,337 | 1,269 | 22 | 11.34 | 79.1 | 0.31 | |||||||||
NHES 1998-1 | 127,936 | 2,126 | 48 | 10.96 | 80.6 | 0.57 | |||||||||
NHES 1998-2 | 174,393 | 2,609 | 58 | 10.54 | 81.0 | 0.98 | |||||||||
All other loans | 263 | 13 | — | 12.86 | 76.0 | — | |||||||||
Total on balance sheet | $423,983 | $8,696 | 45 | % | 10.94 | % | 79.6 | % | 0.67 | ||||||
Sold loans collateralizing asset-backed bonds (A): | |||||||||||||||
NMFT 1999-1 | $119,327 | $ — | 66 | % | 10.43 | % | 81.7 | % | 1.36 | ||||||
NMFT 2000-1 (B) | 221,963 | — | 93 | 10.15 | 81.1 | 2.63 | |||||||||
NMFT 2000-2 (C) | 187,267 | — | 90 | 10.54 | 83.3 | 2.62 | |||||||||
Total off balance sheet | $528,557 | $ — | 86 | % | 10.35 | % | 82.0 | % | 2.34 | ||||||
Current Principal | Premium | Percent with Prepayment Penalty | Weighted Average | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Coupon | Loan-to- value | Remaining Prepayment Penalty Period (in years) - Loans with Penalty | |||||||||||||
As of December 31, 1999 | |||||||||||||||
Retained loans collateralizing asset-backed bonds: | |||||||||||||||
NHES 1997-1 | $ 85,015 | $ 3,942 | 32 | % | 11.04 | % | 75.5 | % | 0.51 | ||||||
NHES 1997-2 | 101,031 | 1,917 | 35 | 10.90 | 79.3 | 0.55 | |||||||||
NHES 1998-1 | 195,170 | 3,205 | 63 | 10.08 | 81.1 | 0.93 | |||||||||
NHES 1998-2 | 237,223 | 3,606 | 74 | 9.97 | 81.1 | 1.51 | |||||||||
All other loans | 383 | 19 | 6 | 11.96 | 77.6 | 0.10 | |||||||||
Total on balance sheet | $618,822 | $12,689 | 58 | % | 10.31 | % | 80.0 | % | 1.03 | ||||||
Sold loans collateralizing asset-backed bonds (A): | |||||||||||||||
Off balance sheet NMFT 1999-1 | $143,328 | $ — | 84 | % | 10.08 | % | 81.5 | % | 2.03 | ||||||
Issue Date | Current Principal Balance | Weighted Average Age of Loans at Inception (in months) | Constant Prepayment Rate (Annual Percent) | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
One- month | Three- month | Twelve- month | Life | |||||||||||
September 30, 2000 | ||||||||||||||
Retained loans collateralizing asset- backed bonds: | ||||||||||||||
NHES 1997-1 | October 1, 1997 | $ 58,054 | 7 | 44 | 41 | 41 | 40 | |||||||
NHES 1997-2 | December 11, 1997 | 63,337 | 3 | 33 | 38 | 47 | 35 | |||||||
NHES 1998-1 | April 30, 1998 | 127,936 | 3 | 38 | 45 | 41 | 29 | |||||||
NHES 1998-2 | August 18, 1998 | 174,393 | 3 | 39 | 43 | 30 | 23 | |||||||
Sold loans collateralizing asset—backed bonds: | ||||||||||||||
NMFT 1999-1 | January 29, 1999 | $119,327 | 5 | 36 | 31 | 23 | 18 | |||||||
NMFT 2000-1 | March 31, 2000 | 221,963 | 2 | 8 | 9 | — | 7 | |||||||
NMFT 2000-2 | September 28, 2000 | 187,267 | 1 | — | — | — | — |
Issue Date | Current Principal Balance | Weighted Average Age of Loans at Inception (in months) | Constant Prepayment Rate (Annual Percent) | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
One- month | Three- month | Twelve- month | Life | |||||||||||
December 31, 1999 | ||||||||||||||
Retained loans collateralizing asset- backed bonds: | ||||||||||||||
NHES 1997-1 | October 1, 1997 | $ 85,015 | 7 | 44 | 42 | 50 | 40 | |||||||
NHES 1997-2 | December 11, 1997 | 101,031 | 3 | 64 | 58 | 42 | 32 | |||||||
NHES 1998-1 | April 30, 1998 | 195,170 | 3 | 47 | 36 | 29 | 23 | |||||||
NHES 1998-2 | August 18, 1998 | 237,223 | 3 | 26 | 21 | 21 | 18 | |||||||
Sold loans collateralizing asset—backed bonds: | ||||||||||||||
NMFT 1999-1 | January 29, 1999 | $143,328 | 5 | 14 | 20 | 14 | 14 |
September 30, 2000 | December 31, 1999 | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
1999-1 | 2000-1 | 2000-2 | 1999-1 | |||||||||||||
Estimated Fair Value | $ | 7,500 | $ | 13,750 | $ | 20,534 | $ | 6,775 | ||||||||
Constant Prepayment Rate (weighted average life) | 37 | 29 | 28 | 31 | ||||||||||||
Static loss, net of mortgage insurance | 2.5 | % | 1.0 | % | 1.0 | % | 2.5 | % | ||||||||
Discount Rate | 17 | % | 15 | % | 15 | % | 17 | % | ||||||||
As a percent of mortgage loan principal: | ||||||||||||||||
Delinquent loans (30 days and greater) | 9.05 | % | 2.59 | % | 0.21 | % | 7.03 | % | ||||||||
Loans in foreclosure | 4.16 | 0.13 | — | 3.22 | ||||||||||||
Real Estate Owned | 1.92 | — | — | 1.26 | ||||||||||||
Cumulative losses | $ | 969 | $ | — | $ | — | $ | — | ||||||||
Loans Repurchased From Trusts | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Cumulative Losses As Reported | Loss Amount | As a % of Original Balance | Total Losses | ||||||||
NMFT 1999-1 | 0.91 | % | $423 | 0.26 | % | 1.17 | % | ||||
NMFT 2000-1 | 0.01 | 2 | 0.00 | 0.01 | |||||||
NMFT 2000-2 | 0.01 | 16 | 0.00 | 0.01 | |||||||
NMFT 2001-1 | — | — | — | — |
Expiration | Maximum Borrowing Limit | Lending Value of Collateral | Borrowings | Availability | ||||||
---|---|---|---|---|---|---|---|---|---|---|
Cash | $10,533 | |||||||||
First Union National Bank: | ||||||||||
Mortgage loan warehouse line of credit | July 2001 | $ 75,000 | $ 66,718 | $48,100 | 21,618 | |||||
Mortgage loan repurchase agreement | July 2001 | 175,000 | 2,481 | 2,481 | — | |||||
Mortgage securities repurchase agreement | April 2003 | 25,000 | 25,000 | — | 25,000 | |||||
GMAC/Residential Funding Corporation — Mortgage loan warehouse line of credit | December 2001 | 60,000 | 23,984 | 17,685 | 6,298 | |||||
Morgan Stanley Dean Witter | March 2002 | 100,000 | 25,000 | 25,000 | — | |||||
Total | $435,000 | $146,183 | $93,266 | $63,449 | ||||||
Asset-Backed Bonds | Mortgage Loans | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Weighted Average | ||||||||||||
Remaining Principal | Interest Rate | Remaining Principal (A) | Coupon | Estimated Months to Call | ||||||||
March, 31, 2001 | ||||||||||||
NHES 1997-1 | $ 43,617 | 5.53 | % | $ 47943 | 11.52 | 0 | ||||||
NHES 1997-2 | 42,091 | 5.57 | 45,850 | 11.39 | 0 | |||||||
NHES 1998-1 | 92,877 | 5.33 | 102,527 | 10.92 | 6 | |||||||
NHES 1998-2 | 140,392 | 5.26 | 148,599 | 10.52 | 19 | |||||||
Unamortized debt issuance costs, net | (788 | ) | ||||||||||
Total | $318,189 | |||||||||||
December 31, 2000 | ||||||||||||
NHES 1997-2 | $ 48,121 | 7.13 | % | 5,2910 | 11.66 | 0 | ||||||
NHES 1998-1 | 51,114 | 6.91 | 5,5736 | 11.54 | 0 | |||||||
NHES 1998-1 | 105,780 | 6.92 | 117,121 | 11.05 | 9 | |||||||
NHES 1998-2 | 153,508 | 6.86 | 163,039 | 10.55 | 22 | |||||||
Unamortized debt issuance costs, net | (1,086 | ) | ||||||||||
Total | $357,437 | |||||||||||
Collateralized Mortgage Obligation | Mortgage Loans | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Remaining Principal | Current Interest Rate | Remaining Principal (A) | Weighted Average Coupon | Estimated Weighted Average Months to Call | |||||||||
As of September 30, 2000: | |||||||||||||
Retained loans collateralizing asset-backed bonds: | |||||||||||||
NHES 1997-1 | $ 54,325 | 7.13 | % | $59,297 | 11.61 | % | — | ||||||
NHES 1997-2 | 59,453 | 6.88 | 65,061 | 11.34 | 4 | ||||||||
NHES 1998-1 | 116,152 | 6.90 | 130,671 | 10.96 | 13 | ||||||||
NHES 1998-2 | 173,663 | 6.84 | 183,913 | 10.54 | 25 | ||||||||
Unamortized debt issuance costs, net | (1,397 | ) | |||||||||||
Total on balance sheet | $402,196 | ||||||||||||
Collateralized Mortgage Obligation | Mortgage Loans | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Remaining Principal | Current Interest Rate | Remaining Principal (A) | Weighted Average Coupon | Estimated Weighted Average Months to Call | |||||||||
Sold loans collateralizing asset-backed bonds: | |||||||||||||
NMFT 1999-1 | $116,659 | 7.14 | % | $119,327 | 10.43 | % | 50 | ||||||
NMFT 2000-1 (B) | 218,166 | 7.02 | 221,963 | 10.15 | 63 | ||||||||
NMFT 2000-2 (C) | 334,220 | 6.95 | 187,267 | 10.54 | 66 | ||||||||
Total off balance sheet | $669,045 | ||||||||||||
As of December 31, 1999: | |||||||||||||
Retained loans collateralizing asset-backed bonds: | |||||||||||||
NHES 1997-1 | $ 75,580 | 6.94 | $ 87,534 | 11.04 | — | ||||||||
NHES 1997-2 | 95,053 | 6.72 | 104,851 | 10.90 | 12 | ||||||||
NHES 1998-1 | 186,493 | 6.55 | 200,625 | 10.08 | 22 | ||||||||
NHES 1998-2 | 231,969 | 6.71 | 244,109 | 9.97 | 29 | ||||||||
Unamortized debt issuance costs, net | (2,227 | ) | |||||||||||
Total on balance sheet | $586,868 | ||||||||||||
Sold loans collateralizing asset-backed bonds: | |||||||||||||
Off balance sheet NMFT 1999-1 | $140,710 | 6.67 | % | $143,328 | 10.08 | % | 55 | ||||||
(A) | Including assets acquired through foreclosure. |
· | $ |
· | $ |
· | $ |
· | $ |
Weighted Average | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Number | Principal | Average Loan Balance | Price Paid to Broker | Loan to Value | Credit Rating (A) | Coupon | Percent with Prepayment Penalty | ||||||||||||||
2001: | |||||||||||||||||||||
First quarter | 2,087 | $244,639 | $117,220 | 101.1 | % | 82 | % | 5.25 | 10.4 | % | 82 | % | |||||||||
2000: | |||||||||||||||||||||
Fourth quarter | 1,768 | $208,232 | $117,778 | 101.1 | % | 82 | % | 5.12 | 10.7 | % | 86 | % | |||||||||
Third quarter | 1,793 | 207,662 | 115,818 | 101.1 | 84 | 5.20 | 10.7 | 90 | |||||||||||||
Second quarter | 1,473 | 171,375 | 116,344 | 101.0 | 82 | 5.32 | 10.5 | 91 | |||||||||||||
First quarter | 1,232 | 132,072 | 107,201 | 101.1 | 80 | 5.45 | 10.2 | 93 | |||||||||||||
Total | 6,266 | $719,341 | $114,801 | 101.1 | 82 | 5.28 | 10.5 | 90 | |||||||||||||
(A) | AAA=7, AA=6, A=5, A-=4, B=3, C=2, D=1 |
2001 | 2000 | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Collateral Location | First | Fourth | Third | Second | First | ||||||||||
California | 17 | % | 11 | % | 11 | % | 10 | % | 10 | % | |||||
Florida | 15 | 14 | 12 | 13 | 14 | ||||||||||
Michigan | 8 | 9 | 10 | 11 | 11 | ||||||||||
Arizona | 6 | 4 | 5 | 5 | 5 | ||||||||||
Ohio | 5 | 6 | 7 | 8 | 7 | ||||||||||
Tennessee | 4 | 4 | 4 | 6 | 7 | ||||||||||
Washington | 3 | 3 | 5 | 5 | 5 | ||||||||||
All other states | 42 | 40 | 35 | 30 | 30 |
Sold to Third Parties | Sold in Securitizations | Held in Warehouse | Payments | Total | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2001 | |||||||||||||||
First quarter | 3 | % | 66 | % | 30 | % | 1 | % | 100 | % | |||||
2000 | |||||||||||||||
Fourth quarter | 9 | 55 | 34 | 2 | 100 | ||||||||||
Third quarter | 9 | 60 | 30 | 1 | 100 | ||||||||||
Second quarter | 12 | 44 | 43 | 1 | 100 | ||||||||||
First quarter | 20 | 53 | 26 | 1 | 100 |
For the Three Months Ended March 31, | ||||||
---|---|---|---|---|---|---|
2001 | Pro Forma 2000 | |||||
Interest income: | ||||||
Mortgage loans | $12,740 | $16,203 | ||||
Mortgage securities | 1,350 | 266 | ||||
Total interest income | 14,090 | 16,469 | ||||
Interest expense | 8,516 | 11,735 | ||||
Net interest income before provision for credit losses | 5,574 | 4,734 | ||||
Provision for credit losses | (519 | ) | (1,430 | ) | ||
Net interest income | 5,055 | 3,304 | ||||
Prepayment penalty income | 250 | 494 | ||||
Premiums for mortgage loan insurance | (437 | ) | (365 | ) | ||
Loan servicing income | 6,204 | 667 | ||||
Gain on sale of mortgage assets | 5,023 | 2,666 | ||||
Other income | 447 | 364 | ||||
General and administrative expenses: | ||||||
Compensation and benefits | 6,685 | 3,288 | ||||
Travel and public relations | 1,897 | 276 | ||||
Office administration | 1,790 | 1,521 | ||||
Loan expense | 519 | 189 | ||||
Professional and outside services | 414 | 526 | ||||
Other | 518 | 118 | ||||
Total general and administrative expenses | 11,823 | 5,918 | ||||
Net income before cumulative effect of change in accounting principle | 4,719 | 1,212 | ||||
Cumulative effect of change in accounting principle | (1,706 | ) | — | |||
Net income | 3,013 | 1,212 | ||||
Dividends on preferred shares | (525 | ) | (525 | ) | ||
Net income available to common shareholders | $ 2,488 | $ 687 | ||||
Mortgage Portfolio | Mortgage Lending and Servicing | Branch Operations | Branch Management | Total | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Net interest income | $3,511 | $2,063 | — | — | $ 5,574 | ||||||||||
Provision for losses | (480 | ) | (39 | ) | — | — | (519 | ) | |||||||
Prepayment penalty income | 250 | — | — | — | 250 | ||||||||||
Mortgage insurance | (240 | ) | (197 | ) | — | — | (437 | ) | |||||||
Gains (loss) on sales of loans | (22 | ) | 5,045 | — | — | 5,023 | |||||||||
Fee income (expense) | (479 | ) | 1,393 | 4,840 | 450 | 6,204 | |||||||||
Other income (expense) | 51 | (1,310 | ) | (1,259 | ) | ||||||||||
General and administrative expenses | (760 | ) | (5,729 | ) | (4,840 | ) | (494 | ) | (11,823 | ) | |||||
Net income | $1,831 | $1,226 | $ — | ($44 | ) | $ 3,013 | |||||||||
Mortgage Loans | Mortgage-Backed Securities | Total | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Average Balance | Interest Income/ Expense | Annual Yield/ Rate | Average Balance | Interest Income/ Expense | Annual Yield/ Rate | Average Balance | Interest Income/ Expense | Annual Yield/ Rate | |||||||||||||
Nine months ended September 30, 2000 | |||||||||||||||||||||
Interest-earning mortgage assets | $475,419 | $34,981 | 9.81 | % | $13,648 | $1,611 | 15.74 | % | $489,067 | $36,592 | 9.98 | % | |||||||||
Interest-bearing liabilities | |||||||||||||||||||||
Collateralized mortgage obligations | $499,805 | $26,721 | 7.13 | % | — | — | — | $499,805 | $26,721 | 7.13 | % | ||||||||||
Other borrowings | — | — | — | 5,228 | 282 | 7.19 | % | 5,228 | 282 | 7.19 | |||||||||||
Cost of derivative financial | |||||||||||||||||||||
Instruments hedging liabilities | 160 | — | — | 160 | |||||||||||||||||
Total borrowings | $499,805 | $26,881 | 7.17 | % | $ 5,228 | $ 282 | 7.19 | % | $505,033 | $27,163 | 7.17 | % | |||||||||
Net interest income | $ 8,100 | $1,329 | $ 9,429 | ||||||||||||||||||
Net interest spread | 2.64 | % | 8.55 | % | 2.81 | % | |||||||||||||||
Net yield | 2.27 | % | 12.98 | % | 2.57 | % | |||||||||||||||
Mortgage Loans | Mortgage-Backed Securities | Total | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Average Balance | Interest Income/ Expense | Annual Yield/ Rate | Average Balance | Interest Income/ Expense | Annual Yield/ Rate | Average Balance | Interest Income/ Expense | Annual Yield/ Rate | |||||||||||||
Nine months ended September 30, 1999 | |||||||||||||||||||||
Interest-earning mortgage assets | $765,073 | $52,236 | 9.10 | % | $808 | $100 | 16.50 | % | $765,845 | $52,336 | 9.11 | % | |||||||||
Interest-bearing liabilities | |||||||||||||||||||||
Collateralized mortgage obligations | $785,547 | $33,782 | 5.73 | % | $ — | $ — | — | % | $785,547 | $33,782 | 5.73 | % | |||||||||
Other borrowings | 5,623 | 541 | 12.83 | — | — | — | 5,623 | 541 | 12.83 | ||||||||||||
Cost of derivative financial | |||||||||||||||||||||
Instruments hedging liabilities | 1,736 | — | 1,736 | ||||||||||||||||||
Total borrowings | $791,170 | $36,059 | 6.08 | % | $ — | — | — | % | $791,170 | $36,059 | 6.08 | % | |||||||||
Net interest income | $16,177 | $100 | $16,277 | ||||||||||||||||||
Net interest spread | 3.02 | % | 16.50 | % | 3.03 | % | |||||||||||||||
Net yield | 2.82 | % | 16.50 | % | 2.83 | % | |||||||||||||||
Mortgage Loans | Mortgage Securities | Total | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Average Balance | Interest Income/ Expense | Annual Yield/ Rate | Average Balance | Interest Income/ Expense | Annual Yield/ Rate | Average Balance | Interest Income/ Expense | Annual Yield/ Rate | ||||||||||||||
Three months ended March 31, 2001 | ||||||||||||||||||||||
Interest-earning mortgage assets | $493,852 | $12,740 | 10.32 | % | $35,613 | $1,350 | 15.15 | % | $529,966 | $14,090 | 10.63 | % | ||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||
Asset-backed bonds | $341,598 | 5,763 | 6.75 | % | 341,598 | 5,763 | 6.75 | % | ||||||||||||||
Other borrowings | 135,113 | 2,406 | 7.12 | 25,000 | 481 | 7.69 | 160,113 | 2,887 | 7.24 | |||||||||||||
Cost of derivative financial instruments hedging liabilities | (133) | (133) | ||||||||||||||||||||
Total borrowings | $476,711 | 8,036 | 6.74 | 25,000 | 480 | 7.69 | 501,711 | 8,516 | 6.79 | |||||||||||||
Net interest income | $ 4,704 | $ 870 | $ 5,574 | |||||||||||||||||||
Net interest spread | 3.58 | 7.46 | 2.26 | |||||||||||||||||||
Net yield | 3.81 | 9.76 | 4.21 | |||||||||||||||||||
Three months ended March 31, 2000 (proforma) | ||||||||||||||||||||||
Interest-earning mortgage assets | $669,053 | $16,203 | 9.70 | % | $ 6,375 | $ 266 | 16.50 | % | $675,429 | $16,409 | 9.77 | % | ||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||
Asset-backed bonds | $557,238 | $ 9,334 | 6.63 | % | $ — | $ — | — | % | $557,238 | $ 9,334 | 6.63 | % | ||||||||||
Other borrowings | 109,560 | 2,099 | 7.58 | — | — | — | 109,560 | 2,099 | 7.58 | |||||||||||||
Cost of derivative financial instruments hedging liabilities | 302 | — | — | 302 | ||||||||||||||||||
Total borrowings | $666,799 | 11,735 | 6.96 | $ — | — | — | $666,799 | 11,735 | 6.96 | |||||||||||||
Net interest income | $ 4,468 | $ 266 | $ 4,734 | |||||||||||||||||||
Net interest spread | 2.74 | 16.50 | 2.81 | |||||||||||||||||||
Net yield | 2.64 | 16.50 | 2.77 | |||||||||||||||||||
2000 | 1999 | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
September 30 | June 30 | March 31 | December 31 | September 30 | June 30 | March 31 | |||||||||||||||
Beginning balance | $ 8,993 | $ 9,763 | $11,105 | $ 5,370 | $ 3,573 | $ 3,492 | $ 3,573 | ||||||||||||||
Provision for credit losses | 1,212 | 1,213 | 1,579 | 10,579 | 5,634 | 3,566 | 2,299 | ||||||||||||||
Amounts charged off, net of recoveries | (2,073 | ) | (1,983 | ) | (2,921 | ) | (4,844 | ) | (3,837 | ) | (3,485 | ) | (2,380 | ) | |||||||
Ending Balance | $ 8,132 | $ 8,993 | $ 9,763 | $11,105 | $ 5,370 | $ 3,573 | $ 3,492 | ||||||||||||||
2001 | 2000 | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
March 31 | December 31 | September 30 | June 30 | March 31 | |||||||||||||
Beginning balance | $7,944 | $8,701 | $9,770 | $10,230 | $11,817 | ||||||||||||
Provision for credit losses | 519 | 1,460 | 1,252 | 1,336 | 1,430 | ||||||||||||
Amounts charged off, net of recoveries | (1,638 | ) | (2,217 | ) | (2,321 | ) | (1,796 | ) | (3,017 | ) | |||||||
Ending balance | $6,825 | $7,944 | $8,701 | $ 9,770 | $10,230 | ||||||||||||
2000 | 1999 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
September 30 | June 30 | March 31 | December 31 | September 30 | June 30 | March 31 | ||||||||
Mortgage loans Collateralizing NovaStar Home Equity Series (CMO): | ||||||||||||||
1997-1 Issued October 1, 1997 | $3,410 | $4,039 | $3,434 | $4,726 | $6,093 | $6,087 | $6,454 | |||||||
1997-2 Issued December 11, 1997 | 5,222 | 6,336 | 6,311 | 6,047 | 5,934 | 5,671 | 8,388 | |||||||
1998-1 Issued April 30, 1998 | 8,131 | 6,455 | 5,987 | 8,467 | 11,411 | 9,687 | 11,818 | |||||||
1998-2 Issued August 18, 1998 | 10,621 | 11,159 | 11,433 | 12,754 | 10,247 | 10,808 | 10,832 |
2000 | 1999 | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
September 30 | June 30 | March 31 | December 31 | September 30 | June 30 | March 31 | |||||||||||||||
Mortgage loans Collateralizing NovaStar Home Equity Series (CMO): | |||||||||||||||||||||
1997-1 Issued October 1, 1997 | 6.01 | % | 6.21 | % | 4.59 | % | 5.63 | % | 6.32 | % | 5.13 | % | 4.37 | % | |||||||
1997-2 Issued December 11, 1997 | 8.23 | 8.88 | 7.66 | 6.24 | 4.92 | 4.03 | 5.38 | ||||||||||||||
1998-1 Issued April 30, 1998 | 6.44 | 4.40 | 3.58 | 4.42 | 5.32 | 4.13 | 4.64 | ||||||||||||||
1998-2 Issued August 18, 1998 | 6.03 | 5.48 | 5.10 | 5.38 | 4.06 | 3.94 | 3.72 |
NovaStar Home Equity Series | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
September 30, 2000 | 1997-1 | 1997-2 | 1998-1 | 1998-2 | All Loans | ||||||||||
Allowance for Credit Losses: | |||||||||||||||
Balance, January 1, 2000 | $2,335 | $ 2,861 | $4,214 | $ 1,685 | $11,105 | ||||||||||
Provision for credit losses | 532 | 815 | 1,419 | 1,235 | 4,004 | ||||||||||
Amounts charged off, net of Recoveries | (1,154 | ) | (1,796 | ) | (2,246 | ) | (1,778 | ) | (6,977 | ) | |||||
Balance, September 30, 2000 | $1,713 | $ 1,880 | $3,387 | $ 1,142 | $ 8,132 | ||||||||||
Defaults as a percent of loan balance | |||||||||||||||
Delinquent loans (A) | 11.46 | % | 9.09 | % | 8.81 | % | 12.49 | % | 10.78 | % | |||||
Loans in foreclosure | 3.99 | 6.71 | 4.80 | 4.53 | 4.86 | ||||||||||
Real estate owned | 4.34 | 3.70 | 3.88 | 3.82 | 3.90 | ||||||||||
Cumulative losses | $4,102 | $ 4,272 | $4,015 | $ 2,345 | |||||||||||
NovaStar Home Equity Series | |||||||||||||||
December 31, 1999 | 1997-1 | 1997-2 | 1998-1 | 1998-2 | All Loans | ||||||||||
Allowance for Credit Losses: | |||||||||||||||
Balance, January 1, 1999 | $ 816 | $ 1,049 | $1,163 | $ 346 | $ 3,573 | ||||||||||
Provision for credit losses | 4,317 | 5,436 | 8,194 | 4,065 | 22,078 | ||||||||||
Amounts charged off, net of Recoveries | (2,798 | ) | (3,624 | ) | (5,143 | ) | (2,726 | ) | (14,546 | ) | |||||
Balance, December 31, 1999 | $2,335 | $ 2,861 | $4,214 | $1,685 | $11,105 | ||||||||||
Defaults as a percent of loan balance | |||||||||||||||
Delinquent loans (A) | 8.03 | % | 9.89 | % | 6.38 | % | 7.50 | % | 7.63 | % | |||||
Loans in foreclosure | 4.73 | 4.32 | 3.75 | 4.02 | 4.09 | ||||||||||
Real estate owned | 3.85 | 4.88 | 3.61 | 2.62 | 3.51 | ||||||||||
Cumulative losses | $2,377 | $ 1,756 | $ 538 | $ 745 | |||||||||||
Outright Mortgage Loan Sales | Mortgage Loans Transferred in Securitizations | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Principal Amount | Net Gain Recognized | Weighted Average Price To Par | Principal Amount | Net Gain Recognized | |||||||
2001: | |||||||||||
First quarter | $ 10,773 | $ 262 | 102.9(A | ) | $211,420 | $4,944 | |||||
2000: | |||||||||||
Fourth quarter | $ 46,158 | $1,666 | 104.6 | $151,277 | $3,227 | ||||||
Third quarter | 50,334 | 1,552 | 104.4 | 188,734 | 3,584 | ||||||
Second quarter | 27,799 | 661 | 103.8 | 101,675 | 1,392 | ||||||
First quarter | 48,548 | 1,204 | 104.0 | 128,121 | 1,544 | ||||||
Total | $172,839 | $5,083 | 104.2 | $569,857 | $9,747 | ||||||
(A) | Includes sales of loans |
Constant Prepayment Rate | Total Projected Default Rate (% of original principal) (A) | Discount Rate | ||||||
---|---|---|---|---|---|---|---|---|
NovaStar Mortgage Funding Trust Series: | ||||||||
1999-01 | 25 to 30 | 2.5 | % | 16.5 | % | |||
2000-01 | 25 to 30 | 1.0 | 14.8 | |||||
2000-02 | 25 to 30 | 1.0 | 15.0 | |||||
2001-01 | 25 to 30 | 1.2 | 20.0 |
(A) | After the effect of mortgage insurance. |
Nine Months Ended September 30, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2000 | 1999 | ||||||||||
Percent of Stockholders’ Equity (Annualized) | Percent of Stockholders’ Equity (Annualized) | ||||||||||
Compensation and benefits | $1,042 | 1.38 | % | $1,358 | 1.61 | % | |||||
Professional and outside services | 467 | 0.62 | 546 | 0.65 | |||||||
Office administration | 607 | 0.80 | 611 | 0.72 | |||||||
Other | 66 | 0.09 | 156 | 0.18 | |||||||
Total general and administrative expenses before Intercompany fees | 2,182 | 2.89 | % | 2,671 | 3.16 | % | |||||
Net fees for other services provided by (to) NovaStar Mortgage, Inc. | (1,460 | ) | 287 | ||||||||
Total general and administrative expenses. | $ 722 | $2,958 | |||||||||
Quarter Ended March 31, | ||||
---|---|---|---|---|
2001 | 2000 | |||
(Pro forma) | ||||
Quarter ended March 31, 2001 | ||||
Compensation and benefits | $ 6,685 | $3,288 | ||
Travel and entertainment | 1,897 | 276 | ||
Office administration | 1,790 | 1,521 | ||
Loan expense | 519 | 189 | ||
Other | 518 | 118 | ||
Professional and outside services | 414 | 526 | ||
Total general and administrative expenses | $11,823 | $5,918 | ||
Nine Months Ended September 30, | |||||||
---|---|---|---|---|---|---|---|
2000 | 1999 | ||||||
Amounts paid to NovaStar Mortgage: | |||||||
Loan servicing fees | $ | 1,982 | $ | 3,056 | |||
Administrative fees | 126 | 1,263 | |||||
Amounts received from NovaStar Mortgage: | |||||||
Guaranty, commitment, loan sale and securitization fees | (1,246 | ) | — | ||||
Interest income | (340 | ) | (976 | ) | |||
$ | (1,460 | ) | $ | 287 | |||
NovaStar Mortgage pays interest on amounts it borrows from NovaStar Financial. Interest on the borrowings accrues at the federal funds rate plus 1.75%. Under this agreement, NovaStar Mortgage is required to pay guaranty fees in the amount 0.25% of the loans sold by NovaStar Mortgage for which NovaStar Financial has guaranteed the performance of NovaStar Mortgage. In addition, beginning July 1, 2000, NovaStar Mortgage entered into the following intercompany agreements:
increased efficiencies in the mortgage lending operation. During the third quarter of 1999, we introduced Internet Underwriter®:, “IU”, a web-based origination system that has allowed us to volumes without adding proportionate infrastructure. Account executive costs typically are higher in the first few months of employment and are expected to decline as the experience and exposure to our loan |
Gross Loan Production | Premium paid to broker, net of fees collected | Total Acquisition Cost | ||||
---|---|---|---|---|---|---|
2001: | ||||||
First quarter | 2.3 | 0.7 | 3.0 | |||
2000: | ||||||
Fourth quarter | 2.8 | 0.5 | 3.3 | |||
Third quarter | 2.6 | 0.5 | 3.1 | |||
Second quarter | 3.0 | 0.5 | 3.5 | |||
First quarter. | 3.3 | 0.5 | 3.8 |
Mortgage Loans | Mortgage-Backed Securities | Average Balance | Total | Annual Yield/ Rate | |||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Three months ended September 30, 2000 | Average Balance | Interest Income/ Expense | Annual Yield/ Rate | Average Balance | Interest Income/ Expense | Annual Yield/ Rate | Interest Income/ Expense | ||||||||||||||||||||||||||||||||||||||||
Interest-earning mortgage assets | $417,846 | $10,391 | 9.95 | % | $18,701 | $733 | 15.68 | % | $436,548 | $11,124 | 10.19 | % | |||||||||||||||||||||||||||||||||||
Interest-bearing liabilities | |||||||||||||||||||||||||||||||||||||||||||||||
Collateralized mortgage obligations | $443,082 | $ 8,400 | 7.58 | % | — | — | — | $443,082 | $ 8,400 | 7.58 | % | ||||||||||||||||||||||||||||||||||||
Other borrowings | — | — | — | 6,787 | 131 | 7.72 | % | 6,787 | 131 | 7.72 | % | ||||||||||||||||||||||||||||||||||||
Cost of derivative financial instruments hedging liabilities | (160 | ) | — | (160 | ) | ||||||||||||||||||||||||||||||||||||||||||
Total borrowings | $443,082 | $ 8,240 | 7.44 | % | $ 6,787 | $131 | 7.72 | % | $449,869 | $ 8,371 | 7.44 | % | |||||||||||||||||||||||||||||||||||
Net interest income | $ 2,151 | $602 | $ 2,753 | ||||||||||||||||||||||||||||||||||||||||||||
Net interest spread | 2.51 | % | 7.96 | % | 2.75 | % | |||||||||||||||||||||||||||||||||||||||||
Net yield | 2.06 | % | 12.88 | % | 2.52 | % | |||||||||||||||||||||||||||||||||||||||||
Mortgage Loans | Mortgage-Backed Securities | Average Balance | Total | Annual Yield/ Rate | |||||||||||||||||||||||||||||||||||||||||||
Three months ended September 30, 2000 | Average Balance | Interest Income/ Expense | Annual Yield/ Rate | Average Balance | Interest Income/ Expense | Annual Yield/ Rate | Interest Income/ Expense | ||||||||||||||||||||||||||||||||||||||||
Interest-earning mortgage assets | $690,323 | $15,595 | 9.04 | % | $ 2,424 | $100 | 16.50 | % | $692,747 | $15,695 | 9.06 | % | |||||||||||||||||||||||||||||||||||
Interest-bearing liabilities | |||||||||||||||||||||||||||||||||||||||||||||||
Collateralized mortgage obligations | $706,685 | $10,626 | 6.01 | % | — | — | — | $706,685 | $10,626 | 6.01 | % | ||||||||||||||||||||||||||||||||||||
Other borrowings | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
Cost of derivative financial instruments hedging liabilities | 580 | — | 580 | ||||||||||||||||||||||||||||||||||||||||||||
Total borrowings | $706,685 | $11,206 | 6.34 | % | $ — | — | — | % | $706,685 | $11,206 | 6.34 | % | |||||||||||||||||||||||||||||||||||
Net interest income | $ 4,389 | $100 | $ 4,489 | ||||||||||||||||||||||||||||||||||||||||||||
Net interest spread | 2.70 | % | 16.50 | % | 2.72 | % | |||||||||||||||||||||||||||||||||||||||||
Net yield | 2.54 | % | 16.50 | % | 2.59 | % | |||||||||||||||||||||||||||||||||||||||||
Three Months Ended September 30, | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2000 | 1999 | ||||||||||||
Percent of Stockholders’ Equity (Annualized) | Percent of Stockholders’ Equity (Annualized) | ||||||||||||
Compensation and benefits | $ | 325 | 1.30 | % | $ | 421 | 1.49 | % | |||||
Professional and outside services | 210 | 0.84 | 181 | 0.64 | |||||||||
Office administration | 206 | 0.82 | 203 | 0.72 | |||||||||
Other | 23 | 0.09 | 60 | 0.21 | |||||||||
Total general and administrative expenses before Intercompany fees | 764 | 3.05 | % | 865 | 3.06 | % | |||||||
Net fees for other services provided by (to) NovaStar Mortgage, Inc. | (1,458 | ) | (169 | ) | |||||||||
Total general and administrative expenses. | $ | (694 | ) | $ | 696 | ||||||||
Three Months Ended September 30, | ||||||||
---|---|---|---|---|---|---|---|---|
2000 | 1999 | |||||||
Amounts paid to NovaStar Mortgage: | ||||||||
Loan servicing fees | $ | 599 | $ | 936 | ||||
Administrative fees, net of guaranty fees. | (111 | ) | 115 | |||||
Amounts received from NovaStar Mortgage: | ||||||||
Guaranty, commitment, loan sale and securitization fees | (1,239 | ) | — | |||||
Interest income | (108 | ) | (284 | ) | ||||
$ | (1,458) | $ | (169 | ) | ||||
Mortgage Portfolio | Mortgage Lending and Servicing | Branch Operations | Branch Management | Total | |||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Compensation and benefits | $442 | $3,513 | $2,475 | $255 | $6,685 | ||||||
Office administration | 123 | 1,165 | 413 | 89 | 1,790 | ||||||
Professional and outside services | 195 | 207 | 3 | 9 | 414 | ||||||
Loan expense | — | 461 | 58 | — | 519 | ||||||
Travel and entertainment | 11 | 310 | 1,549 | 27 | 1,897 | ||||||
Other | (11 | ) | 73 | 342 | 114 | 518 | |||||
Total | 760 | 5,729 | 4,840 | 494 | 11,823 | ||||||
September 30, | ||||||||
---|---|---|---|---|---|---|---|---|
2000 | 1999 | |||||||
Net income | $ | 3,336 | $ | 2,034 | ||||
Use of net operating loss carryforward | (176 | ) | (2,628 | ) | ||||
Results of NFI Holding and subsidiaries | (646 | ) | (1,518 | ) | ||||
Provision for credit losses | 4,004 | 11,499 | ||||||
Loans charged-off | (6,977 | ) | (9,702 | ) | ||||
Other, net | 459 | 1,175 | ||||||
Estimated taxable income (loss) | $ | — | $ | 860 | ||||
NFI Holding Corporation Condensed Consolidated Balance Sheets (unaudited, dollars in thousands) | ||||||
---|---|---|---|---|---|---|
September 30, 2000 | December 31, 1999 | |||||
Assets | ||||||
Cash and cash equivalents | $ | 3,272 | $ | 1,466 | ||
Mortgage loans | 68,750 | 107,916 | ||||
Other assets | 12,647 | 10,061 | ||||
Total assets | $ | 84,669 | $ | 119,443 | ||
Liabilities and Stockholders’ Equity | ||||||
Liabilities: | ||||||
Borrowings | $ | 44,805 | $ | 78,448 | ||
Due to NovaStar Financial, Inc. | 12,918 | 22,161 | ||||
Accounts payable and other liabilities | 19,247 | 11,787 | ||||
Total liabilities | 76,970 | 112,396 | ||||
Stockholders’ equity | 7,699 | 7,047 | ||||
Total liabilities and stockholders’ equity | $ | 84,669 | $ | 119,443 | ||
Nine Months Ended September 30, | Three Months Ended September 30, | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2000 | 1999 | 2000 | 1999 | ||||||||
Interest income | $11,828 | $ 7,948 | $ 4,723 | $3,122 | |||||||
Interest expense. | 7,034 | 3,764 | 3,007 | 1,544 | |||||||
Net interest income | 4,794 | 4,184 | 1,716 | 1,578 | |||||||
Provision for credit losses | 80 | (284 | ) | 97 | (168 | ) | |||||
Net interest income after provision for credit losses | 4,714 | 4,468 | 1,619 | 1,746 | |||||||
Other income: | |||||||||||
Fees from third parties | 5,057 | 706 | 2,826 | 152 | |||||||
Fees received from, net of paid to, NovaStar Financial, Inc. | 522 | 3,343 | (859 | ) | 767 | ||||||
Net gain on sales of mortgage assets | 9,909 | 9,189 | 5,075 | 3,101 | |||||||
Total other income | 15,488 | 13,238 | 7,042 | 4,020 | |||||||
General and administrative expenses | 19,550 | 16,172 | 7,866 | 5,183 | |||||||
Net income before taxes | 652 | 1,534 | 795 | 583 | |||||||
Income tax expense | — | — | — | — | |||||||
Net income | $ 652 | $ 1,534 | $ 795 | $ 583 | |||||||
Number of Loans | Principal | Average Loan Balance | Weighted Average | Percent with Prepayment Penalty | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Price Paid to Broker | Loan to Value | Credit Rating (A) | Coupon | ||||||||||||||||
2000: | |||||||||||||||||||
Third quarter | 1,793 | $207,662 | $115,818 | 101.1 | 84 | % | 5.20 | 10.72 | % | 90 | % | ||||||||
Second quarter | 1,473 | 171,375 | 116,344 | 101.0 | 82 | 5.32 | 10.50 | 91 | |||||||||||
First quarter | 1,232 | 132,072 | 107,201 | 101.1 | 80 | 5.45 | 10.16 | 93 | |||||||||||
2000 total | 4,498 | $511,109 | $113,630 | 101.1 | 82 | % | 5.30 | 10.50 | % | 91 | % | ||||||||
1999: | |||||||||||||||||||
Fourth quarter | 1,265 | $130,288 | $102,994 | 101.0 | 82 | % | 5.30 | 10.04 | % | 91 | % | ||||||||
Third quarter | 1,204 | 125,140 | 103,937 | 100.8 | 82 | 5.28 | 9.87 | 91 | |||||||||||
Second quarter | 1,161 | 114,631 | 98,735 | 101.1 | 82 | 5.14 | 9.82 | 89 | |||||||||||
First quarter | 865 | 82,495 | 95,370 | 100.5 | 80 | 4.95 | 9.85 | 89 | |||||||||||
1999 total | 4,495 | $452,554 | $100,679 | 100.9 | 82 | % | 5.19 | 9.90 | % | 90 | % | ||||||||
Mortgage Loan Sales to Third Parties | Mortgage Loans Transferred in Securitizations | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Principal Amount | Net Gain Recognized | Weighted Average Price To Par | Principal Amount | Net Gain Recognized | |||||||
2000: | |||||||||||
Third quarter | $ 50,334 | $ 1,552 | 104.0 | $188,734 | $3,584 | ||||||
Second quarter | 27,799 | 661 | 104.0 | 101,675 | 1,392 | ||||||
First quarter | 48,548 | 1,204 | 104.0 | 128,171 | 1,544 | ||||||
2000 total | $126,681 | $ 3,417 | 104.0 | $418,580 | $6,520 | ||||||
1999: | |||||||||||
Fourth quarter | $109,443 | $ 2,583 | 104.1 | % | $ — | $ — | |||||
Third quarter | 110,512 | 3,075 | 104.2 | — | — | ||||||
Second quarter | 98,048 | 2,911 | 104.4 | 25,800 | 355 | ||||||
First quarter | 72,824 | 1,593 | 103.6 | 138,847 | 1,250 | ||||||
1999 total | $390,827 | $10,162 | 104.1 | $164,647 | $1,605 | ||||||
Gross Loan Production | Premium paid to broker, net of fees collected | Total Acquisition Cost | |||||||
---|---|---|---|---|---|---|---|---|---|
Costs as a percent of principal: | |||||||||
2000: | |||||||||
Third quarter | 2.6 | % | 0.5 | % | 3.1 | % | |||
Second quarter | 3.0 | % | 0.5 | % | 3.5 | % | |||
First quarter | 3.3 | % | 0.5 | % | 3.8 | % | |||
1999: | |||||||||
Fourth quarter | 3.1 | % | 0.5 | % | 3.6 | % | |||
Third quarter | 3.8 | % | 0.4 | % | 4.2 | % | |||
Second quarter | 4.2 | % | 0.5 | % | 4.7 | % | |||
First quarter. | 6.2 | % | 0.2 | % | 6.4 | % | |||
Percent of Total Originations during Quarter (based on original principal balance) | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2000 | 1999 | ||||||||||||||||||||
Collateral Location | Third | Second | First | Fourth | Third | Second | First | ||||||||||||||
Florida | 12 | % | 13 | % | 14 | % | 12 | % | 15 | % | 12 | % | 15 | % | |||||||
California | 11 | 10 | 10 | 10 | 10 | 8 | 6 | ||||||||||||||
Ohio | 7 | 8 | 7 | 8 | 12 | 10 | 8 | ||||||||||||||
Michigan | 10 | 11 | 11 | 12 | 10 | 10 | 12 | ||||||||||||||
Nevada | 6 | 7 | 7 | 5 | 4 | 4 | 3 | ||||||||||||||
Arizona | 5 | 5 | 5 | 8 | 5 | 7 | 4 | ||||||||||||||
Colorado | 5 | 5 | 4 | 2 | 1 | 1 | 2 | ||||||||||||||
Tennessee | 5 | 6 | 7 | 6 | 4 | 6 | 9 | ||||||||||||||
Washington | 5 | 5 | 5 | 4 | 4 | 5 | 3 | ||||||||||||||
All other states | 34 | 30 | 30 | 33 | 35 | 37 | 38 |
Constant prepayment rate (weighted average life) | Static loss, net of mortgage insurance (basis points) | Discount Rate | |
---|---|---|---|
2000-1 | 27 | 1% | 15% |
2000-2 | 28 | 1% | 15% |
2001 | 2000 | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
March 31 | December 31 | September 30 | June 30 | March 31 | ||||||||||||||||||
Amount | % | Amount | % | Amount | % | Amount | % | Amount | % | |||||||||||||
Unpaid principal | $1,263,773 | $1,112,615 | $1,016,951 | $970,026 | $872,702 | |||||||||||||||||
Units | 11,999 | 10,774 | 10,041 | 9,683 | 8,919 | |||||||||||||||||
Servicing income, net of amortization of mortgage servicing rights | $1,465 | 0.46 | $ 1,473 | 0.53 | $ 1,392 | 0.55 | $ 1,321 | 0.54 | $ 1,219 | 0.56 | ||||||||||||
Costs of servicing | 1,238 | 0.39 | 1,185 | 0.43 | 1,095 | 0.43 | 1,015 | 0.42 | 1,064 | 0.49 | ||||||||||||
Net servicing income | $ 227 | 0.07 | $ 288 | 0.10 | $ 297 | 0.12 | $ 306 | 0.12 | $ 155 | 0.07 | ||||||||||||
Annualized costs of servicing per unit | $ 412.70 | $ 439.95 | $ 436.21 | $ 419.29 | $ 477.18 | |||||||||||||||||
Table 23 Delinquencies and Defaults (dollars in thousands) | ||||||||||||||
2000 | 1999 | |||||||||||||
September 30 | June 30 | March 31 | December 31 | September 30 | June 30 | March 31 | ||||||||
Loan servicing portfolio | $1,016,952 | $970,016 | $872,693 | $894,572 | $969,343 | $1,032,065 | $1,072,393 | |||||||
Total defaults: | ||||||||||||||
Delinquent loans (A) | 4.90% | 4.82% | 5.58% | 6.28% | 4.75% | 5.21% | 4.12% | |||||||
Loans in foreclosure | 3.34 | 3.25 | 3.55 | 3.62 | 3.79 | 3.36 | 3.39 | |||||||
Real estate owned | 1.97 | 2.07 | 2.65 | 2.71 | 2.24 | 2.20 | 1.66 | |||||||
Percent Sold to NovaStar Financial, Inc. | Percent Sold to Third Parties | Percent Sold in Securitizations | Percent Held in Portfolio | Percent of Prepayments | Total | ||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2000 | |||||||||||||||||||||||||||||||||||
Third quarter | — | 9 | % | 60 | % | 30 | % | 1 | % | 100 | % | ||||||||||||||||||||||||
Second quarter | — | 12 | 44 | 43 | 1 | 100 | |||||||||||||||||||||||||||||
First quarter | — | 20 | 53 | 26 | 1 | 100 | |||||||||||||||||||||||||||||
1999 | |||||||||||||||||||||||||||||||||||
Fourth quarter | — | 52 | — | 46 | 2 | 100 | |||||||||||||||||||||||||||||
Third quarter | — | 54 | — | 44 | 2 | 100 | |||||||||||||||||||||||||||||
Second quarter | — | 32 | 13 | 54 | 1 | 100 | |||||||||||||||||||||||||||||
First quarter | — | 25 | 45 | 29 | 1 | 100 |
2001 | 2000 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
March 31 | December 31 | September 30 | June 30 | March 31 | ||||||||
Branches (end of quarter) | 84 | 63 | 48 | 25 | 16 | |||||||
Loans originated | 1,126 | 867 | 533 | 272 | 103 | |||||||
Fee income | $4,840 | $3,955 | $2,283 | $1,093 | $330 | |||||||
General and administrative costs | $4,840 | $3,662 | $2,277 | $1,093 | $328 | |||||||
Personnel | 288 | 252 | 162 | 107 | 81 |
2001 | 2000 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
March 31 | December 31 | September 30 | June 30 | March 31 | ||||||||
Fee income | $450 | $343 | $210 | $101 | $31 | |||||||
General and administrative costs | 494 | 590 | 362 | 219 | 93 | |||||||
Personnel | 15 | 12 | 11 | 6 | 5 |
Liquidity and Capital Resources
Liquidity means the need for, access to and uses of cash. The primary needs for cash include the acquisition of mortgage loans, principal repayment and interest on borrowings, operating expenses and dividend payments. Substantial cash is required to support the operating activities of the business, especially the mortgage origination operation. Mortgage asset sales, principal, interest and fees collected on mortgage assets and residual interests on CMOs will serve to support cash needs. Drawing upon various borrowing arrangements typically satisfies major cash requirements.
Mortgage lending requires substantialsignificant cash to fund loan originations and for operating costs. As of September 30, 2000, NFI Holding owned $68.8 million of non-conformingOur warehouse lending arrangements, including repurchase agreements, are used to support the mortgage loans. NFI Holding provided financing for these loans through warehouse and repurchase credit facilities with First Union and GMAC/RFC.lending operation. Loans financed with warehouse and repurchase credit facilities are subject to changing market valuation and margin calls. Management expectsLoans we originate can be sold to continue selling loans originated by NovaStar Mortgage or securitizing those loansthird a party, which also generates cash to meet the significant cash needs of the wholesale loan operation. Management believes NovaStar Financialfund on-going operations. We believe we can operate indefinitely in this manner, provided that the level of loan originations is at or near the capacity of its production infrastructure.
Maturity | Maximum Borrowing Limit | Lending Value of Collateral | Borrowings | Availability | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Resource | ||||||||||||||||
Cash | $ | 6,039 | ||||||||||||||
Committed facilities with First Union National Bank (A): | ||||||||||||||||
Warehouse line of credit | 7/27/01 | $ | 75,000 | $ | 43,950 | $ | 21,038 | $ | 22,912 | |||||||
Secured whole loan repurchase agreement | 7/27/01 | $ | 175,000 | $ | 224 | $ | 224 | $ | — | |||||||
Residual financing available | 12/17/01 | $ | 25,000 | $ | (B | ) | $ | 10,960 | $ | 14,040 | ||||||
Committed facility with GMAC/Residential Funding Corporation (A): | ||||||||||||||||
Warehouse line of credit | 12/27/00 | $ | 50,000 | $ | 23,543 | $ | 23,543 | $ | — | |||||||
Total | $ | 335,961 | $ | 81,024 | $ | 55,765 | $ | 42,991 | ||||||||
Cash activity during the ninethree months ended September 30,March 31, 2001 and 2000 and 1999 are presented in the consolidated statement of cash flows.
Our capital of NovaStar Financial has come from
a private placement offering of preferred stock, raising net proceeds of $47 million. |
an initial public offering of common stock, raising net proceeds of $67 million, and |
a private offering of convertible preferred stock, raising net proceeds of $29 million. |
We use capital when financing loans on a long-term basis. Under short-term financing arrangements, NovaStarwe can borrow up to the lessor of 98% of the face amount or 95% of the market value of the loans it owns.our loans. In long-term financing (i.e. in the form of asset-backed bonds) NovaStarwe can finance approximately 95% of the market value of the loans. NovaStar must use its own capital resourcesCapital is used to “finance”fund the difference between the financed portion and the full loan cost.
During 19992000 and 2000, most2001, a portion of the loans we originated by NovaStar Mortgage were sold to third parties and in securitization transactions treated as sales for tax and financial reporting purposes. In
During 2000, management expects2001, we expect to finance half75% or more of the loans produced by NovaStar Mortgage.we produce. The remainder will be sold to third parties. NovaStarWe currently hashave excess capital available to support this mode ofoperation during 2000.of operation. When NovaStar Financialwe fully deploys itsdeploy our capital, management expectswe expect to either raise more equity from the capital markets or sell enough loans so that it operateswe operate without the need for additional capital.
Inflation
Virtually all of our assets and liabilities of NovaStar Financial are financial in nature. As a result, interest rates and other factors drive company performance far more than does inflation. Changes in interest rates do not necessarily correlate with inflation rates or changes in inflation rates. TheOur financial statements of NovaStar Financial are prepared in accordance with generally accepted accounting principles and the dividends are based on taxable income. In each case, financial activities and balance sheet are measured with reference to historical cost or fair market value without considering inflation.
Impact of Recently Issued Accounting Pronouncements
effective for recognition and reclassification of collateral and for disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000. Disclosures about securitization and collateral accepted need not be reported for periods ending on or before December 15, 2000, for which financial statements are presented for comparative purposes. Management does not expect the adoption of SFAS No. 140 to have a material impact on the financial statements of NovaStar Financial.
In addition, Note 1 of the consolidated financial statements contained in the annual report on Form 10-K for the fiscal year ended December 31, 19992000 describes certain recently issued accounting pronouncements. Management believes the implementation of these pronouncements and others that have gone into effect since the date of these reports will not have a material impact on the consolidated financial statements.
Interest Rate/Market Risk
Our investment policy for NovaStar Financial sets the following general goals:
(1) | Maintain the net interest margin between assets and liabilities, and |
(2) | Diminish the effect of changes in interest rate levels on the market value of NovaStar Financial. |
Loan Price Volatility. Under itsour current mode of operation, NovaStar Financial dependswe depend heavily on the market for wholesale non-conforming mortgage loans. To conserve capital, NovaStar Mortgagewe may sell loans itwe originates. The financialFinancial results of NovaStar Financial will depend, in part, on the ability to find purchasers for the loans at prices that cover origination expenses. Exposure to loan price volatility will beis reduced as NovaStar Financial resumeswe resume acquisition and retention of mortgage loans.
Interest Rate Risk. Interest rate risk is the risk that the market value of assets will increase or decrease at different rates than that of the liabilities. Expressed another way, this is the risk that NovaStar Financial’s net asset value will experience an adverse change when interest rates change. When interest rates on the assets do not adjust at the same rates as the liabilities or when the assets are fixed rates and the liabilities are adjusting, future earnings potential is affected. Management primarily uses financing sources where the interest rate resets frequently. As of September 30, 2000March, 31, 2001 borrowings under all financing arrangements adjust daily, monthly, or quarterly. On the other hand, very few of the mortgage assets owned by NovaStar Financial, as of September 30, 2000,we own, adjust on a monthly or daily basis. Most of the mortgage loans contain features where their rates are fixed for some period of time and then adjust frequently thereafter. For example, one of our loan products is the “2/28”"2/28" loan. This loan is fixed for its first two years and then adjusts every six months thereafter.
While short-term borrowing rates are low and long-term asset rates are high, this portfolio structure produces good results. However, if short-term interest rates rise rapidly, earning potential is significantly affected, as the asset rate resets would lag the borrowing rate resets. The converse can be true when sharp declines in short-term interest rates cause interest costs to fall faster than asset rate resets, thereby increasing earnings.
In its assessment of the interest sensitivity and as an indication of exposure to interest rate risk, management relies on models of financial information in a variety of interest rate scenarios. Using these models, the fair value and interest rate sensitivity of each financial instrument, or groups of similar instruments is estimated, and then aggregated to form a comprehensive picture of the risk characteristics of the balance sheet. The risks are analyzed on both an income and market value basis.
The following are summaries of the analysis as of September 30, 2000 and DecemberMarch 31, 1999.
Table 26
Basis Point Increase (Decrease) in Interest Rate(A) | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
As of September 30, 2000 | (100) | Base | 100 | |||||||||
Income from: | ||||||||||||
Assets | $ | 84,379 | $ | 86,755 | $ | 88,761 | ||||||
Liabilities (B) | 64,589 | 72,375 | 80,318 | |||||||||
Interest rate agreements | (1,882 | ) | 221 | 3,961 | ||||||||
Net spread income | $ | 17,908 | $ | 14,601 | $ | 12,404 | ||||||
Cumulative change in income from base (C) | $ | 3,307 | — | $ | (2,197 | ) | ||||||
Percent change from base spread income (D) | 22.6 | % | — | (15.0 | )% | |||||||
Percent change of capital(E) | 3.3 | % | — | (2.2 | )% | |||||||
As of December 31, 1999 | (100) | Base | 100 | |||||||||
Income from: | ||||||||||||
Assets | $ | 61,610 | $ | 64,419 | $ | 66,954 | ||||||
Liabilities (B) | 42,173 | 47,803 | 53,442 | |||||||||
Interest rate agreements | (1,379 | ) | (1,379 | ) | 1,122 | |||||||
Net spread income | $ | 18,058 | $ | 5,237 | $ | 14,634 | ||||||
Cumulative change in income from base (C) | $ | 2,821 | — | $ | (603 | ) | ||||||
Percent change from base spread income (D) | 18.5 | % | — | (4.0 | )% | |||||||
Percent change of capital(E) | 2.8 | % | — | (0.6 | )% | |||||||
Basis Point Increase (Decrease) in | |||||||||
(100) | Base | 100 | |||||||
Income from: | |||||||||
Assets | $ | 103,707 | $ | 105,554 | $ | 107,210 | |||
Liabilities (B) | 57,107 | 66,577 | 76,309 | ||||||
Interest rate agreements | (1,299 | ) | ( 1,299 | ) | ( 1,291 | ) | |||
Net interest income | $ | 45,301 | $ | 37,678 | $ | 29,610 | |||
Cumulative change in net interest income from base | |||||||||
Percent change in net interest income from base | 18.8 | — | (21.3 | ) | |||||
Percent change of capital (C) | 6.5 | — | (6.9 | ) | |||||
(A) | Income of asset, liability or interest rate agreement in a parallel shift in the yield curve, up and down 1%. |
(B) | Includes |
(C) |
Total change in estimated spread income as a percent of total |
Table 27
Basis Point Increase (Decrease) in Interest Rate(A) | ||||||
---|---|---|---|---|---|---|
As of September 30, 2000 | (100) | 100 | ||||
Change in market values of: | ||||||
Assets | $ | 12,254 | $ | (14,627 | ) | |
Liabilities | (1,820 | ) | 2,020 | |||
Interest rate agreements | (2,611 | ) | 5,522 | |||
Cumulative change in market value | $ | 7,823 | $ | (7,085 | ) | |
Percent change of market value portfolio equity (B) | 8.4 | % | (7.6 | )% | ||
As of December 31, 1999 | ||||||
Change in market values of: | ||||||
Assets | $ | 9,112 | $ | (11,340 | ) | |
Liabilities | (2,068 | ) | 2,376 | |||
Interest rate agreements | (2,809 | ) | 4,723 | |||
Cumulative change in market value | $ | 4,235 | $ | (4,241 | ) | |
Percent change of market value portfolio equity (B) | 4.4 | % | (4.4 | )% | ||
Basis Point Increase (Decrease)in Interest Rate(A) | ||||||
(100) | 100 | |||||
Change in market values of: | ||||||
Assets | $ | 9,564 | $ | (12,220 | ) | |
Liabilities | (1,876 | ) | 2,176 | |||
Interest rate agreements | (3,825 | ) | 5,677 | ) | ||
Cumulative change in market value | $ | 3,863 | $ | (4,367 | ) | |
Percent change of market value portfolio equity (B) | 3.9 | % | (4.4 | )% | ||
(A) | Change in market value of assets, liabilities or interest rate agreements in a parallel shift in the yield curve, up and down 1%. |
(B) | Total change in estimated market value as a percent of market value portfolio equity as of |
Interest Rate Sensitivity Analysis.. The values under the heading “Base”"Base" are management’smanagement's estimates of spread income for assets, liabilities and interest rate agreements on September 30, 2000 and DecemberMarch 31, 1999.2001. The values under the headings “100”"100" and “(100)”"(100)" are management’smanagement's estimates of the income and change in market value of those same assets, liabilities and interest rate agreements assuming that interest rates were 100 basis points, or 1 percent higher and lower. The cumulative change in income or market value represents the change in income or market value of assets, net of the change in income or market value of liabilities and interest rate agreements.
The interest sensitivity analysis is prepared monthly. If the analysis demonstrates that a 100 basis point shift, up or down, in interest rates would result in 25 percent or more cumulative decrease in income from base, or a 10% cumulative decrease in market value from base, policy requires management to adjust the portfolio by adding or removing interest rate cap or swap agreements. The Board of Directors reviews and approves NovaStar Financial’sour interest rate sensitivity and hedged position quarterly. Although management also evaluates the portfolio using interest rate increases and decreases less than and greater than one percent, management focuses on the one percent increase.
Assumptions Used in Interest Rate Sensitivity Analysis.. Management uses a variety of estimates and assumptions in determining the income and market value of assets, liabilities and interest rate agreements. The estimates and assumptions have a significant impact on the results of the interest rate sensitivity analysis, the results of which are shown as of September 30, 2000 and DecemberMarch 31, 1999.2001.
Management's analysis for assessing interest rate sensitivity on its mortgage loans relies significantly on estimates for prepayment speeds. TheA prepayment model used by management has been internally developed and is a function based on the borrowers’ payment change percentage. The factors affecting the size of the borrowers’ payment are as follows:
Refinancing incentives (the interest rate of the mortgage compared with the current mortgage rates available to the borrower) |
Borrower credit grades |
Loan-to-value ratios |
Prepayment penalties, |
Generally speaking, when market interest rates decline, borrowers are more likely to refinance their mortgages. The higher the interest rate a borrower currently has on his or her mortgage the more incentive he or she has to refinance the mortgage when rates decline. In addition, the higher the credit grade, the more incentive there is to refinance when credit ratings improve. When a borrower has a low loan-to-value ratio, he or she is more likely to do a “cash-out”"cash-out" refinance. When a borrower has a higher balance loan, as refinancing rates fall, the percent of potential payment decrease is greater than on a comparably smaller balance loan, thereby making higher balance loans prepay faster. Each of these factors increases the chance for higher prepayment speeds during the term of the loan. On the other hand, prepayment penalties serve to mitigate the risk that loans will prepay because the penalty is a deterrent to refinancing.
These factors are weighted based on management’smanagement's experience and an evaluation of the important trends observed in the non-conforming mortgage origination industry and NovaStar Financial and NovaStar Mortgage’s mortgage loan portfolio.industry. Actual results may differ from the estimates and assumptions used in the model and the projected results as shown in the sensitivity analyses. Management evaluates and updates the model periodically as the market changes and new data is collected.
Projected prepayment rates are based on a prepayment vector and in each interest rate scenario start at a prepayment speed less than 5% in month one and increase to a long-term prepayment speed in nine to 18 months, to account for the seasoning of the loans. The long-term
prepayment speed ranges from 20% to 40% and depends on the characteristics of the loan which include type of product (ARM or fixed rate), note rate, credit grade, LTV, gross margin, weighted average maturity and lifetime and periodic caps and floors. This prepayment vectorcurve is also multiplied by a factor of 55% to 70% depending60% on the length and type of penaltyaverage for periods when a prepayment penalty is in effect on the loan. Prepayment assumptions are also multiplied by a factor of greater than 100% during periods around rate resets and prepayment penalty expirations. These assumptions change with levels of interest rates. The actual historical speeds experienced on NovaStar Financial’sFinancial's loans shown in Table 56 are weighted average speeds of all loans in each deal.
As shown in Table 5,6, actual prepayment rates on loans that have been held in portfolio for shorter periods are slower than long term prepayment rates used in the interest rate sensitivity analysis. This table also indicates that as pools of loans held in portfolio season, the actual prepayment rates are more consistent with the long term prepayment rates used in the interest sensitivity analysis.
Hedging with Off-Balance-Sheet Financial Instruments.. In order to address a mismatch of assets and liabilities, the hedging section of the investment policy is followed, as approved by the Board. Specifically, the interest rate risk management program is formulated with the intent to offset the potential adverse effects resulting from rate adjustment limitations on its mortgage assets and the differences between interest rate adjustment indices and interest rate adjustment periods of its adjustable-rate mortgage loans and related borrowings.
We use interest rate cap and swap contracts to mitigate the risk of the cost of its variable rate liabilities increasing at a faster rate than the earnings on its assets during a period of rising rates. In this way, management intends generally to hedge as much of the interest rate risk as determined to be in the best interest of NovaStar Financial, given the cost of hedging transactions and the need to maintain REIT status.
We seek to build a balance sheet and undertake an interest rate risk management program that is likely, in management’smanagement's view, to enable NovaStar Financialus to maintain an equity liquidation value sufficient to maintain operations given a variety of potentially adverse circumstances. Accordingly, the hedging program addresses both income preservation, as discussed in the first part of this section, and capital preservation concerns.
Interest rate cap agreements are legal contracts between NovaStar Financialus and a third party firm or “ counter-party”"counter-party". The counter-party agrees to make payments to NovaStar Financialus in the future should the one- or three-month LIBOR interest rate rise above the strike rate specified in the contract. NovaStar FinancialWe make either makes quarterly premium payments or hashave chosen to pay the premiums upfront to the counterparties under contract. Each contract has a fixed notional face amount on which the interest is computed, and a set term to maturity. When the referenced LIBOR interest rate rises above the contractual strike rate, NovaStar Financial earnswe earn cap income. Payments on an annualized basis equal the contractual notional face amount times the difference between actual LIBOR and the strike rate.
Interest rate swaps have similar characteristics. However, interest rate swap agreements allow us to pay a fixed rate of interest while receiving a rate that adjusts with one-month LIBOR.
PART II. OTHER INFORMATION
None | |||
Item 6. | Exhibits and Reports on Form 8-K |
(a) Exhibit Listing
Exhibit No. | Description of Document | ||
3.1* | Articles of Amendment and Restatement of the Registrant | ||
3.2* | Articles Supplementary of the Registrant | ||
3.3* | Bylaws of the Registrant | ||
3.3a*** | Amendment to Bylaws of the Registrant, adopted February 2, 2000 | ||
3.4*** | Articles Supplementary of NovaStar Financial, Inc. dated as of March 24, 1999, as filed with the Maryland Department of Assessment and Taxation. | ||
10.10a | |||
Promissory Note by Scott F. Hartman to the Registrant, dated | |||
January 1, 2001. | |||
10.11a | Promissory Note by W. Lance Anderson to the Registrant, dated | ||
January 1, 2001. | |||
11.1 | |||
Statement regarding computation of per share earnings. | |||||||||
21.1 | Subsidiaries of the Registrant |
* | Incorporated by reference to the correspondingly numbered exhibit to the Registration Statement on Form S-11 (373-32327) filed by the Registrant with the SEC on July 29 1997, as amended. | ||||||||
*** | |||||||||
Incorporated by reference to the correspondingly numbered exhibit to Form 8-K filed by the Registrant with the SEC on April 5, 1999. | |||||||||
*** | Incorporated by reference to the correspondingly numbered exhibit to Annual Report on Form 10K filed by the Registrant with the SEC on March 20, 2000. |
founders' notes receivable. |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
NOVASTAR FINANCIAL, INC.
DATE: | /s/ Scott F. Hartman |
Scott F. Hartman |
Chairman of the Board, Secretary and |
Chief Executive Officer |
(Principal Executive Officer) |
DATE: | /s/ Rodney E. Schwatken |
Rodney E. Schwatken |
Vice President, Treasurer and Controller (Principal Accounting Officer) |