Industry News

NovaStar to cut 350 positions in wholesale loan originations

Subprime lender reports 'unacceptable' performance of 2006 loans

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Subprime lender NovaStar Financial Inc. will cut 17 percent of its workforce, laying off 350 workers at its Kansas City, Mo., headquarters, and at operations centers in California and Ohio. The job cuts, to be completed by the second quarter, target NovaStar's wholesale loan originations and do not affect loan servicing, the company said. The layoffs are expected to cost the company up to $3.1 million this quarter but reduce long-term costs. In their annual report to shareholders, NovaStar executives said performance of its 2006 loans had dropped to "unacceptable levels," blaming the downturn in the housing market and the company's own underwriting guidelines and tolerance for inflated appraisals. The company reported profits declined from $132.5 million in 2005 to $66.3 million in 2006. NovaStar has been subject to increased repurchase demands as a result of borrower fraud and early payment defaults, the company said. The lender said it was tightening underwriting guidelines, steppin...