Exhibit 10.4

ISDA®

International Swaps and Derivatives Association, Inc.

NOVATION AGREEMENT

dated as of November 30, 2006 among:

WACHOVIA BANK, NATIONAL ASSOCIATION (the “Remaining Party”),

NOVASTAR MORTGAGE, INC. (the “Transferor”)

AND

NOVASTAR MORTGAGE SUPPLEMENTAL INTEREST TRUST, SERIES 2006-6 (the “Transferee”).

The Transferor and the Remaining Party have entered into one or more
Transactions (each an “Old Transaction”), each evidenced by a Confirmation (an
“Old Confirmation”) attached hereto as Exhibit I and subject to a 1992 ISDA
Master Agreement dated as of November 15, 2003 (the “Old Agreement”).

The Remaining Party and the Transferee are simultaneously entering into a 1992
ISDA Master Agreement dated as of the date hereof in the form attached hereto as
Exhibit II (the “New Agreement”) relative to the New Transactions (defined
below).

With effect from and including November 30, 2006 (the “Novation Date”) the
Transferor wishes to transfer by novation to the Transferee, and the Transferee
wishes to accept the transfer by novation of, all the rights, liabilities,
duties and obligations of the Transferor under and in respect of each Old
Transaction, with the exception of the Excluded Rights and Obligations referred
to below with the effect that the Remaining Party and the Transferee will enter
into a new transaction (each a “New Transaction” and, collectively, the “New
Transactions”) between them having terms identical to those of each applicable
Old Transaction, subject to the same exceptions and as more particularly
described below.

The Remaining Party wishes to accept the Transferee as its sole counterparty
with respect to each of the New Transactions.

The Transferor and the Remaining Party wish to have released and discharged, as
a result and to the extent of the transfer described above, their respective
obligations under and in respect of the Old Transactions.

Accordingly, the parties agree as follows: —

1. Definitions.

Terms defined in the ISDA Master Agreement (Multicurrency-Cross Border) as
published in 1992 by the International Swaps and Derivatives Association, Inc.
(the “1992 ISDA Master Agreement”) are used herein as so defined, unless
otherwise provided herein. For purposes of this Novation Agreement, “Excluded
Rights and Obligations” means all obligations of each of the Transferor and the
Remaining Party to Transfer (as defined in the Credit Support Annex to the Old
Agreement) Eligible Collateral (as so defined) in respect of the Old
Transactions and all related rights of the Remaining Party and the Transferor
under the Old Agreement.

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2. Transfer, Release, Discharge and Undertakings.

Subject to the execution and delivery of the New Agreement by each of the
parties thereto to the other, with effect from and including the Novation Date
and in consideration of the mutual representations, warranties and covenants
contained in this Novation Agreement and other good and valuable consideration
(the receipt and sufficiency of which are hereby acknowledged by each of the
parties):

 

  (a) on the Novation Date, subject to Section 2(d) of this Novation Agreement,
the Transferor hereby transfers all of its rights, liabilities, duties and
obligations, with the exception of the Excluded Rights and Obligations, relative
to, and in connection with the Old Transactions to the Transferee. For the sake
of clarity, all references to Independent Amounts shall be deemed deleted from
the confirmations for each New Transaction;

 

  (b) subject to Section 2(d) of this Novation Agreement, the Remaining Party
and the Transferor are each hereby released and discharged from further
obligations to each other with respect to each Old Transaction and their
respective rights against each other thereunder are cancelled, provided that
such release and discharge shall not affect any rights, liabilities or
obligations of the Remaining Party or the Transferor with respect to payments or
other obligations due and payable or due to be performed prior to the Novation
Date, and all such payments and obligations shall be paid or performed by the
Remaining Party or the Transferor in accordance with the terms of such Old
Transaction;

 

  (c) in respect of each New Transaction, the Remaining Party and the Transferee
each hereby undertake liabilities and obligations towards the other and acquire
rights against each other identical in their terms to each corresponding Old
Transaction (and, for the avoidance of doubt, as if the Transferee were the
Transferor and with the Remaining Party remaining the Remaining Party, save for
the Excluded Rights and Obligations and any other rights, liabilities or
obligations of the Remaining Party or the Transferor with respect to payments or
other obligations due and payable or due to be performed prior to the Novation
Date);

 

  (d) each New Transaction shall be governed by, form part of, and be subject to
the New Agreement and the relevant Old Confirmation (which, in conjunction and
as deemed modified to be consistent with this Novation Agreement, shall be
deemed to be a Confirmation between the Remaining Party and the Transferee), and
the offices of the Remaining Party and the Transferee for purposes of each New
Transaction shall be their offices at their addresses for notices provided for
in the New Agreement; and

 

  (e) on the Novation Date, the Remaining Party shall transfer any and all of
the Posted Collateral (as defined in the Credit Support Annex to the Old
Agreement) held by it in respect of the Old Transactions to the account or
accounts of the Transferor identified by it by notice given to the Remaining
Party as provided in the Old Agreement, and the Transferor shall transfer all
Posted Collateral held by it in respect of the Old Transactions to the account
or accounts of the Remaining Party identified by it by notice given to the
Transferor as provided in the Old Agreement, in each case together with all
Interest Amount and Distributions thereon (as so defined). The Remaining Party’s
or the Transferor’s failure to effect these transfers will continue to
constitute Potential Events of Default and may constitute Events of Default
under the Old Agreement notwithstanding the transfer by novation contemplated
herein.

 

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3. Representations and Warranties.

 

  (a) On the date of this Novation Agreement:

 

  (i) Each of the parties makes to each of the other parties those
representations and warranties set forth in Section 3(a) of the 1992 ISDA Master
Agreement with references in such Section to “this Agreement” or “any Credit
Support Document” being deemed references to this Novation Agreement alone.

 

  (ii) The Remaining Party and the Transferor each makes to the other, and the
Remaining Party and the Transferee each makes to the other, the representation
set forth in Section 3(b) of the 1992 ISDA Master Agreement, in each case with
respect to the Old Agreement or the New Agreement, as the case may be, and
taking into account the parties entering into and performing their obligations
under this Novation Agreement.

 

  (iii) Each of the Transferor and the Remaining Party represents and warrants
to each other and to the Transferee that:

 

  (A) it has made no prior transfer (whether by way of security or otherwise) of
the Old Agreement or any interest or obligation in or under the Old Agreement or
in respect of any Old Transaction; and

 

  (B) without prejudice to the obligations of the Remaining Party and the
Transferor referred to in Section 2(d) of this Novation Agreement, as of the
Novation Date, all obligations of the Transferor and the Remaining Party under
each Old Transaction required to be performed before the Novation Date have been
fulfilled.

 

  (iv) Each party represents to each of the other parties: —

 

  (A) Non-Reliance. Transferor and the Remaining Party is each acting for its
own account, and with respect to the Transferee, Deutsche Bank National Trust
Company is executing as Trustee for the Transferee. Each has made its own
independent decisions to enter into this Novation Agreement and as to whether
this Novation Agreement is appropriate or proper for it based upon its own
judgment and upon advice from such advisers as it has deemed necessary. It is
not relying on any communication (written or oral) of the other parties as
investment advice or as a recommendation to enter into this Novation Agreement;
it being understood that information and explanations related to the terms and
conditions of this Novation Agreement shall not be considered investment advice
or a recommendation to enter into this Novation Agreement. No communication
(written or oral) received from any of the other parties shall be deemed to be
an assurance or guarantee as to the expected results of this Novation Agreement;

 

  (B) Assessment and Understanding. It is capable of assessing the merits of and
understanding (on its own behalf or through independent professional advice),
and understands and accepts, the terms, conditions and risks of this Novation
Agreement. It is also capable of assuming, and assumes, the risks of this
Novation Agreement; and

 

  (C) Status of Parties. None of the other parties is acting as a fiduciary for
or an adviser to it in respect of this Novation Agreement.

 

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  (b) The Transferor makes no representation or warranty and does not assume any
responsibility with respect to the legality, validity, effectiveness, adequacy
or enforceability of any New Transaction or the New Agreement or any documents
relating thereto and assumes no responsibility for the condition, financial or
otherwise, of the Remaining Party, the Transferee or any other person or for the
performance and observance by the Remaining Party, the Transferee or any other
person of any of its obligations under any New Transaction or the New Agreement
or any document relating thereto and any and all such conditions and warranties,
whether express or implied by law or otherwise, are hereby excluded; provided,
however, that nothing in the foregoing shall be construed to relieve the
Transferor from any liability it may have for any of its representations,
warranties or obligations as the servicer or otherwise under the Pooling and
Servicing Agreement among NovaStar Mortgage Funding, Inc., U.S. Bank, National
Association, and JPMorgan Chase Bank, National Association dated as of
November 1, 2006 (the “Pooling and Servicing Agreement”)

 

4. Counterparts.

This Novation Agreement (and each amendment, modification and waiver in respect
of it) may be executed and delivered in counterparts (including by facsimile
transmission), each of which will be deemed an original.

 

5. Costs and Expenses.

The parties will each pay their own costs and expenses (including legal fees)
incurred in connection with this Novation Agreement and as a result of the
negotiation, preparation and execution of this Novation Agreement.

 

6. Amendments.

No amendment, modification or waiver in respect of this Novation Agreement will
be effective unless in writing (including a writing evidenced by a facsimile
transmission) and executed by each of the parties or confirmed by an exchange of
telexes or electronic messages on an electronic messaging system, and subject to
the Rating Agency Condition as defined in the New Agreement.

 

7.      (a)    Governing Law.

This Novation Agreement will be governed by and construed in accordance with the
laws of the State of New York without reference to the conflict of laws
provisions thereof (other than Section 5-1401 of the New York General
Obligations Law).

 

  (b) Jurisdiction.

The terms of Section 13(b) of the 1992 ISDA Master Agreement shall apply to this
Novation Agreement with references in such Section to “this Agreement” being
deemed references to this Novation Agreement alone.

 

  (c) Not Acting in Individual Capacity.

Deutsche Bank National Trust Company is signing this Novation Agreement solely
in its capacity as Trustee to the Transferee under the Pooling and Servicing
Agreement and in the exercise of the powers and authority conferred and vested
in it thereunder and not in its individual capacity. It is expressly understood
and agreed by the parties hereto that (i) each of the representations,
undertakings and agreements herein stated to be those of the Transferee is made
and intended for the purpose of binding only the Transferee, (ii) nothing herein
contained shall be construed as creating any liability for Deutsche Bank
National Trust Company, individually or personally, to perform any covenant
(either express or implied) contained herein

 

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stated to be those of the Transferee, and all such liability, if any, is hereby
expressly waived by the parties hereto, and (iii) under no circumstances shall
Deutsche Bank National Trust Company be liable for the breach or failure of any
obligation, representation, warranty or covenant made or undertaken by the
Transferee under this Novation Agreement. All persons having any claim against
the Trustee by reason of the Transactions contemplated by shall look only to the
assets of NovaStar Mortgage Supplemental Interest Trust, Series 2006-6 (subject
to the availability of funds therefor in accordance with the Flow of Funds as
set forth in Article IV of the Pooling and Servicing Agreement) for payment or
satisfaction thereof.

The foregoing may not be construed to give to Majority Certificateholders any
rights under this Novation Agreement.

 

  (d) Pooling and Servicing Agreement.

Capitalized terms used in this Novation Agreement that are not defined herein
and are defined in the Pooling and Servicing Agreement shall have the respective
meanings assigned to them in the Pooling and Servicing Agreement.

 

  (e) Calculation

Not later than each Reset Date, the Calculation Agent shall deliver in writing
to the Trustee the results of any calculations made on such reset date to the
Indenture Trustee address as provided in the notices portion of the New
Agreement.

 

  (f) Account Details

Remaining Party:

Wachovia Bank, N.A.

CIB Group, ABA 053000219

Ref: Derivative Desk (Trade No: [            ])

Account#: 04659360006116

Transferee:

Deutsche Bank National Trust Company

ABA # 021001033

Acct # 01419663

Acct Name NYLTD Funds Control-Stars West

Ref: Trust Administration- Novastar 2006-6, Hedge confirm # [            ]

 

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IN WITNESS WHEREOF the parties have executed this Novation Agreement on the
respective dates specified below with effect from and including the Novation
Date.

 

WACHOVIA BANK, NATIONAL ASSOCIATION     NOVASTAR MORTGAGE, INC. By:  

/s/ Kim V. Farr

    By:  

/s/ David L. Farris

Name:   Kim V. Farr     Name:   David L. Farris Title:   Director     Title:  
Vice President

 

NOVASTAR MORTGAGE SUPPLEMENTAL

INTEREST TRUST, SERIES 2006-6

By:   Deutsche Bank National Trust Company, as Trustee under the Pooling and
Servicing Agreement, acting not in its individual capacity, but solely in its
capacity as Trustee to NovaStar Mortgage Supplemental Interest Trust, Series
2006-6 By:  

/s/ Melissa Wilman

Name:   Melissa Wilman Title:   Vice President

 

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Exhibit I

[Old Hedge Confirmations attached behind this page]

 

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RATE CAP TRANSACTION CONFIRMATION

LOGO [g53635img002.jpg]

 

Date:   August 30, 2006 To:   Novastar Mortgage, Inc. (“Counterparty”) Address:
  8140 Ward Parkway, Suite 300   Kansas City MO   64114 USA Fax:   816-237-7515
Attention.:   Jeremy Messerly From:   Wachovia Bank, N.A. (“Wachovia”) Ref No:  
1556610, 1556603

Dear Jeremy Messerly:

This confirms the terms of the Transaction described below between Counterparty
and Wachovia. The definitions and provisions contained in the 2000 ISDA
Definitions, as published by the International Swaps and Derivatives
Association, Inc., are incorporated into this Confirmation. In the event of any
inconsistency between those definitions and provisions and this Confirmation,
this Confirmation will govern.

This Confirmation supplements forms part of, and is subject to, the ISDA Master
Agreement between Wachovia and Counterparty dated as of September 15, 2003, as
amended and supplemented from time to time (the “ISDA Master Agreement”). All
provisions contained or incorporated by reference in the Master Agreement will
govern this Confirmation except as expressly modified herein.

1. The terms of the particular Transaction to which the Confirmation relates are
as follows:

 

Transaction Type

Currency for Payments

 

Rate Cap

U.S. Dollars

Notional Amount   USD 80,000,000.00 Term:  

Trade Date:

  August 29, 2006.

Effective Date:

  September 25, 2006.

Termination Date:

  September 25, 2008 in respect of Floating Amounts, subject to adjustment in
accordance with the Modified Following Business Day Convention September 25,
2008 in respect of Fixed Amounts Fixed Amounts II  

Fixed Rate Payer II:

  Counterparty

Period End Dates:

  Monthly on the 25th of each month commencing October 25, 2006, through and
including the Termination Date; No Adjustment.

Payment Dates:

 

Monthly on the 25th of each month commencing October 25, 2006, through

and including the Termination Date

Business Day Convention:

  Modified Following

Business Day:

  New York

Fixed Rate:

  0.2475%

Fixed Rate Day Count Fraction:

  30/360 Floating Amounts:  

Floating Rate Payer

  Wachovia

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Cap Rate:

  5.25%

Payment Dates:

  Monthly on the 25th of each month commencing October 25, 2006, through and
including the Termination Date

Business Day Convention:

  Modified Following

Business Day:

  New York

Floating Rate for initial

Calculation Period:

  Determined two London Banking Days prior to the Effective Date

Floating Rate Option:

  USD-LIBOR-BBA

Designated Maturity:

  1 Month

Spread:

  None

Floating Rate Day

 

Count Fraction:

  Actual/360

Floating Rate determined:

  Two London Banking Days prior to each Reset Date.

Reset Dates:

  The first day of each Calculation Period.

Compounding:

  Inapplicable

Rounding Convention:

  5 decimal places per the ISDA Definitions.

2. The additional provisions of this Confirmation are as follows:

 

Calculation Agent:   As per the Master Agreement Payment Instructions:  
Wachovia Bank, N.A.   CIB Group, ABA 053000219   Ref: Derivative Desk (Trade No:
1556610, 1556603)   Account #: 04659360006116 Wachovia Contacts:   Settlement
and/or Rate Resets:   1-800-249-3865   1-704-383-8429   Documentation:   Tel:
(704) 383-4599   Fax: (704) 583-9139   Collateral:   Tel: (704) 383-9529  
Please quote transaction reference number. Payments to Counterparty:   Wachovia
Bank, N. A - NC   ABA 053000219   Account number: 2000001099539   For Account
of:   P/F/C:

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Please confirm that the foregoing correctly sets forth the terms of our
agreement by executing a copy of this Confirmation and returning is to us or by
sending to us a letter substantially similar to this letter, which letter sets
forth the material terms of the transaction to which this Confirmation relates
and indicates your agreement to those terms.

 

Very truly yours,

 

Wachovia Bank, N.A.

By:  

/s/ Tracey Bissell

Name:   Tracey Bissell Title:   Vice President Ref. No. 1556610, 1556603

 

Accepted and Confirmed as of date first

written above:

 

Novastar Mortgage, Inc.

By:  

/s/ David L. Farris

Name:   David L. Farris Title:   V.P.