Novation Holdings Inc. · OTC:NOHO
Novation — NovaStar Financial — 2006 FBR Investor Conference
17 slides from Novation's conference presentation, Nov 27, 2006
Slide 1: NovaStar Financial
NovaStar Financial (NYSE-NFI) www.novastarmortgage.com 2006 FBR Investor Conference November 28, 2006 Scott Hartman, CEO
Slide 2: Safe Harbor Statement
Safe Harbor Statement Certain matters discussed in this release constitute forward-looking statements within the meaning of the federal securities laws. Forward-looking statements are those that predict or describe future events and that do not relate solely to historical matters. Forward-looking st
Slide 3: Business Overview
Business Overview High margin, nonconforming residential mortgages Market size of $400B to $600B NovaStar has less than 2% market share Create mortgage securities with good risk-adjusted returns from our loans through securitization Use capital markets to price and lay off risks Interest rate risks
Slide 4: Mortgage Banking
Mortgage Banking
Slide 5: Origination Channels
Origination Channels* Primarily Wholesale (79%) Independent brokers Includes correspondent flow Retail (19%) Primarily portfolio retention Oak Street acquisition scheduled to close by year-end ‘06 Correspondent Bulk (2%) Opportunistic and price sensitive *Figures are current run-rate including $100
Slide 6: Monthly production chart
4,200,000 4,100,000 4,000,000 900,000 800,000 700,000 Production (00's) 600,000 00,000 400,000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec +2004 —=— 2005 a= 2008,
Slide 7: Historical WAC/Swap Spreads
Historical WAC/Swap Spreads
Slide 8: Gross Spread
Gross Spread 6.0% 105.00 55% 104.00 5.0% 45% 403.00 4.0% em 102.00 2.0% 25% 401.00 AGP oh oO 5 oP 0h oh oP oh WAP ak dh dh di ok ad dh we Gross Spread —e—Whole loan price ‘Whole Loan Price used at Securitization
Slide 9: Wholesale Cost of Production
“NOwSrak 3.00% 2.80% 272% 2.00% 2.40% 2.20% 2.00% 4.80% 1.73% 1.60% 1.40% 1.20% 1.00% ex ga" gy ga'D# gy 8 ga 05 gy 06 gg 06 ‘Wholesale Cast of Production
Slide 10: Mortgage Banking Trends
Mortgage Banking Trends Reasonable demand for whole-loans but pricing is a little tighter Adapting with changes to guidelines Some originators continue to price low for volume Gain-on-sale margins continue to be too tight when adjusted for risks Premium recapture Loan buyback Driving down cost to or
Slide 11: Portfolio Management
Portfolio Management
Slide 12: World Class Portfolio Management Team
World Class Portfolio Management Team Mike Bamburg, CIO Former Partner with Smith Breeden More than 19 years specializing in analysis and hedging of mortgage backed securities Proprietary modeling Staff includes three PhD's or PhD candidates
Slide 13: Risks and Risk Management
Risks and Risk management Interest rate/prepayment Hedging – match duration using swaps and caps Prepayment/convexity – prepayment penalties Portfolio is hedged within maximum exposure of 10% of equity up/down 100 bps Credit Geographic diversification Lender paid deep MI to 50-60% LTV Common sense U
Slide 14: U.S. Housing Price Appreciation
U.S. Housing Price Appreciation Source: OFHEO
Slide 15: NovaStar loan portfolio net interest income and ROA
NOVASTAR: 2.00% = 1.80% & 600 ry 1.60% £ § 500 1.40% = 1.20% ¢ 400 « = 4.00% 3 3 00 0.80% . % 3 200 0.60% g ° 5 0.40% 2 5 0.20% Sx 0.00% oes ype R oF oF sy oe ® a Loan Portfolio Net Interest income ——ROA
Slide 16: 09=>AL1°9 IW
09=>AL1°9 IW =60 DMI @LIV=
Slide 17: Portfolio Management Trends
Portfolio Management Trends Generally positive about our portfolio and the value it has created Reasonably good demand for our bonds Credit weaker than in the past Portfolio is diversified and hedged from a credit and interest rate perspective Delinquencies, severities and housing price data will dr