Exhibit 10.4

ISDA®

International Swaps and Derivatives Association, Inc.

NOVATION AGREEMENT

dated as of September 28, 2006 among:

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

NOVASTAR MORTGAGE, INC. (the “Transferor”)

AND

NOVASTAR MORTGAGE SUPPLEMENTAL INTEREST TRUST, SERIES 2006-5 (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 September 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 September 28] 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. It is acting for its own account, and it 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.

 

  (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

 

3

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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 September 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 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 2006-5 (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.

 

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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 2006-5, 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 2006-5

   

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 2006-5

    By:  

/s/ Melissa Wilman

    Name:   Melissa Wilman     Title:   Vice President    

 

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Exhibit I

[Old Hedge Confirmations attached behind this page]

 

7

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AMENDED AND RESTATED

RATE CAP TRANSACTION CONFIRMATION

 

Date:    July 13, 2006 To:    Novastar Mortgage. Inc. (“Counterparty”) Address:
   8140 Ward Parkway, Saile 300    Kansas City MO    64114 USA Fax:   
816-237-7515 Attention:    Jeremy Messerly From :    Wachovia Bank. N.A.
(“Wachovia”) Ref. No:    1509379, 69

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 amends, restates, and replaces
any Prior Confirmation of this Transaction.

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    Rate Cap Currency for Payments    U.S. Dollars Notional
Amount    USD 80,000,000.00 Terms   

Trade Date:

   July 13, 2006

Effective Date:

   July 25, 2006

Termination Date:

   July 25, 2008, subject to adjustment in accordance with the Modified
Following Business Day Convention. Fixed Amounts:   

Fixed Rate Payer:

   Counterparty

Period End Dates:

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

Payment Dates:

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

Business Day Convention:

   Modified Following

Business Day:

   New York

Fixed Rate:

   0.223%

Fixed Rate Day Count Fraction:

   30/360 Floating Amount:   

Floating Rate Payer:

   Wachovia

Cap Rate:

   5.60%

Payment Dates:

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

Wachovia 1509370

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Business Day Convention:

   Modified following

Business Day:

   New York

Floating Rate for initial

  

Calcualtion 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: 1509370, 69)

Account #: 04659360006116

Wachovia Contacts:    Settlement and/or Rate Resets:    1-800-249-3865   
1-704-383-8429   

Documentation:

Tel: (704) 383-4599

   Fax: (704) 383-9139    Collateral    Tel: (704) 383-9529    Please quote
transaction reference number. Payment to Counterparty:    Wachovia Bank, N.A. -
NC    ABA 053000219    Account number: 2000001099539    For Account of:   
F/F/C:

Wachovia: 1509370

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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 it 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. 1509370, 69

 

Accepted and Confirmed as of date first

written above

Novastar Mortgage, Inc.

By:  

/s/ David L. Farris

Name:   David L. Farris Title:   V.P.

Wachovia: 1509370

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AMENDED AND RESTATED

RATE CAP TRANSACTION CONFIRMATION

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Date:    July 18, 2006 To:    Novastar Mortgage. Inc. (“Counterparty”) Address:
   8140 Ward Parkway, Suite 300    Kansas City MO    64114 USA Fax:   
816-237-7515 Attention:
From:   

Jeremy Messerly

Wachovia Bank N.A. (“Wachovia”)

Ref. No:    1509371, 1509372      

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 amends, restates, and replaces
any Prior Confirmation of this Transaction.

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    Rate cap Currency for Payments    U.S. Dollars Notional
Amount    USD 20,000,000.00 Term        Trade Date:    July 13, 2006
    Effective Date:    July 25, 2006     Termination Date:    July 25, 2009 ,
subject to adjustment in accordance with the Modified Following Business Day
Convention. Fixed Amounts:        Fixed Rate Payer:    Counterparty     Period
End Dates:    Monthly on the 25th of each month commencing August 25, 2006,
through and including the Termination Date; No Adjustment.     Payment Dates:   
Monthly on the 25th of each month commencing August 25, 2006, through and
including the Termination Date     Business Day Convention:    Modified
Following     Business Day    New York     Fixed Rate:    0.305%
    Fixed Rate Day Count Fraction:    30/360 Floating Amounts        Floating
Rate Payer:    Wachovia     Cap Rate:    5.60%     Payment Dates:    Monthly on
the 25th of each month commencing August 25, 2006, through and including the
Termination Date

Wachovia: 1509371, 1509372

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    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.

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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: 15093711)    Account #: 04659360006116 Wachovia Contacts:    Settlement
and/or Rate Resets    1-800-249-3865    1-704-383-8429    Documentation:    Tel.
(704) 383-4599    Fax. (704) 383-9139    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:    F/F/C: Wachovia: 1509371, 1509372

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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 it 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. 1509371, 1509372

 

Accepted and Confirmed as of date first

written above:

Novastar Mortgage, Inc.

By:  

/s/ David L. Farris

Name:   David L. Farris Title:   V.P.

Wachovia 1509371, 1509372

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RATE CAP TRANSACTION CONFIRMATION

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Date:    July 19, 2006 To:    Novastar Mortgage, Inc. (“Counterparty”) Address:
   8140 Ward Packway, Suite 300    Kansas City MO    64114 USA Fax:   
816-237-7515 Attention:    Jeremy Messerly From:    Wachovia Bank, N.A.
(“Wachovia”) Ref. No:    1501081, 1501082

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 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:

   Rate Cap

Currency for Payments:

   U.S. Dollars

Notional Amount:

   USD 80,000,000.00

Terms:

  

Trade Date:

   July 19, 2006

Effective Date:

   July 25, 2006

Termination Date:

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

Fixed Amounts

  

Fixed Rate Payer:

   Counterparty

Period End Dates

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

Payment Dates:

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

Business Day Convention:

   Modified Following

Business Day:

   New York

Fixed Rate:

   0.2225%

Fixed Rate Day Count Fraction:

   30/360

Floating Amounts

  

Floating Rate Payer:

   Wachovia

Cap Rate:

   5.60%

Payment Dates:

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

Business Day Convention:

   Modified following

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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 provision 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. 1501081, 1501082)    Account #: 04659360006116 Wachovia Contacts:   
Settlement and/or Rate Resets:    1-800-249-3865    1-704-383-8429   
Documentation:    Tel. (704) 383-4599    Fax: (704) 383-9139    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:    F/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 it 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. 1501081

 

Accepted and Confirmed as of date first written above:

Novastar Mortgage, Inc.

By:  

/s/ David L. Farris

Name:   David L. Farris Title:   V.P.

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RATE CAP TRANSACTION CONFIRMATION

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Date:    July 19, 2006 To:    Novastar Mortgage, Inc. (“Counterparty”) Address:
  

8140 Ward Parkway, Suite 300

Kansas City MO

64114 USA

Fax:    816-237-7515

Attention:

From:

  

Jeremy Messerly

Wachovia Bank, N.A. (“Wachovia”)

Ref. No:    1501083, 1501084 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:    Rate Cap Currency for Payments:    U.S. Dolars Notinal
Amount:    USD 20,000,000.00 Term:   

Trade Date:

   July 19, 2006

Effective Date:

   July 25, 2006

Termination Date:

   July 25, 2009, in respect of the Fixed Amounts    July 25, 2009 , subject to
adjustment in accordance with the Modified    Following Business Day Convention
in respect of the Floating Amounts. Fixed Amounts:   

Fixed Rate Payer:

   Counterparty

Period end Dates:

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

Payment Dates:

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

Business Day Convention:

   Modified Following

Business Day:

   New York

Fixed Rate:

   0.314%

Fixed Rate Day Count Fraction:

   30/360 Floating Amounts   

Floating Rate Payer:

   Wachovia

Cap Rate:

   5.60%

Payment Dates:

   Monthly on the 25th of each month commencing August 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:

Payment Instructions:

  

As per the Master Agreement

Wachovia Bank, N.A.

   CIB Group, ABA 053000219    Ref: Derivative Desk (Trade No: 1501083, 1501084)
   Account #: 04659360006116 Wachovia Contacts:    Settlement and/or Rate
Resets:    1-800-249-3865    1-704-383-8429    Documentation:    Tel: (704)
383-4599    Fax: (704) 383-9139    Collateral:    Tel: (704) 383-9529    Please
quote transaction referenece number: Payments to Counterparty:   

Wachovia Bank, N.A. - NC

ABA 053000219

   Account number: 2000001099539    For Account of:    F/F/C:

--------------------------------------------------------------------------------

Please confirm that the foregoing correctly sets forth the terms of our
agreement by executing a copy of this Confirmation and returning in 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. 1501083, 1501084

 

Accepted and Confirmed as of date first

written above:

Novastar Mortgage, Inc.

By:  

/s/ David L. Farris

Name:   David L. Farris Title:   V.P.

--------------------------------------------------------------------------------

RATE CAP TRANSACTION CONFIRMATION

     LOGO [g46142page519.jpg]

 

Date:    July 27, 2006 To:    Novastar Mortgage, Inc. (“Counterparty”) Address:
   8140 Ward Parkway, Suite 300   

Kansas City MO

64114 USA

Fax:    816-237-7515

Attention:

From:

  

Jeremy Messerly

Wachovia Bank, N.A. (“Wachovia”)

Ref. No:    1515194, 1515193

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 Continuation. 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    Rate Cap Currency for Payments    U.S. Dollars Notional
Amount    USD 20,000,000.00 Term:        Trade Date:    July 26, 2006
    Effective Date:    August 25, 2006.     Termination Date:    August 25, 2009
in respect of Floating Amounts, subject to adjustment in accordance with the
Modified Following Business Day Convention. August 25, 2009 in respect of Fixed
Amounts Fixed Amounts:        Fixed Rate Payer:    Counterparty     Period End
Dates:    Monthly on the 25th of each month commencing September 25, 2006,
through and including the Termination Date; No Adjustment.     Payment Dates:   
Monthly on the 25th of each month commencing September 25, 2006, through and
including the Termination Date     Business Day Convention:    Modified
Following     Business Day:    New York     Fixed Rate:    0.312%     Fixed Rate
Day Count Fraction    30/360 Floating Amounts:        Floating Rage Payer:   
Wachovia     Cap Rate:    5.50%

--------------------------------------------------------------------------------

    Payment Dates    Monthly on the 25th of each month commencing September 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: 1515194, 1515193)    Account #: 04659360006116
Wachovia Contacts:    Settlement and/or Rate Resets:    1-800-249-3865   
1-704-383-8429    Documentation:    Tel: (704) 383-4599    Fax: (704) 383-9139
   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:    F/F/C:

--------------------------------------------------------------------------------

Please confirm that the foregoing correctly sets forth the terms of our
agreement by executing a copy of this Confirmation and returning it 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. 1515194, 1515193

 

Accepted and Confirmed as of date first

written above

Novastar Mortgage, Inc.

By:  

/s/ David L. Farris

Name:   David L. Farris Title:   V.P.

--------------------------------------------------------------------------------

RATE CAP TRANSACTION CONFIRMATION

     LOGO [g46142page519.jpg]

 

Date:    August 01, 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:    1522977, 1522976

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:    Rate Cap Currency for Payments:    U.S. Dollars Notional
Amount:    USD 20,000,000.00 Term:        Trade Date:    July 31, 2006
    Effective Date:    August 25, 2006     Termination Date:   

August 25, 2009 in respect of the Floating Amounts, subject to adjustment in
accordance with the Modified Following Business Day Convention.

August 25, 2009 in respect of the Fixed Amounts

Fixed Amounts:        Fixed Rate Payer:    Counterparty     Period End Dates:   
Monthly on the 25th of each month commencing September 25, 2006, through and
including the Termination Date; No Adjustment.     Payment Dates:    Monthly on
the 25th of each month commencing September 25, 2006, through and including the
Termination Date     Business Day Convention:    Modified Following     Business
Day:    New York     Fixed Rate:    0.331%     Fixed Rate Day Count Fraction   
30/360 Floating Amounts:        Floating Rate Payer    Wachovia     Cap Rate:   
5.40%

--------------------------------------------------------------------------------

    Payment Dates:    Monthly on the 25th of each month commencing September 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:    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 ISDA Definitions. 2. The additional provisions of this Confirmation
are as follows:

Calculation Agent:

Payment Instructions:

  

As per the Master Agreement

Wachovia Bank, N.A.

   CIB Group, ABA 053000219    Ref: Derivative Desk (Trade No: 1522977, 1522976)
   Account # 04659360006116 Wachovia Contacts:    Settlement and/or Rate Resets:
   1-800-249-3865    1-704-383-8429    Documentation:    Tel: (704)383-4599   
Fax: (704)383-9139    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    F/F/C:

--------------------------------------------------------------------------------

Please confirm that the foregoing correctly sets forth the terms of our
agreement by executing a copy of this Confirmation and returning it 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. 1522977, 1522976

Accepted and Confirmed as of date first

written above:

Novastar Mortgage, Inc.

 

By:  

/s/ David L. Farris

Name:   David L. Farris Title:   V.P.

--------------------------------------------------------------------------------

Exhibit II

[Form of New Agreement attached behind this page]