UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-K

[X]      Annual  report  pursuant  to  Section  13 or  15(d)  of the Securities
         Exchange Act of 1934 for the fiscal year ended December 31, 2005

[ ]      Transition report pursuant to Section 13 or 15(d) of the
         Securities Exchange Act of 1934 for the transition period from   to


                                      Commission File Number 333-121066-02

                    NOVASTAR MORTGAGE FUNDING CORPORATION
          (as Depositor under the Pooling and Servicing and Agreement,
           dated as of May 1, 2005, providing for the issuance of
                 NovaStar Mortgage Funding Trust, Series 2005-2
       NovaStar Home Equity Loan Asset-Backed Certificates, Series 2005-2
             (Exact name of registrant as specified in its charter)

         Delaware                                            48-1195807
State or other jurisdiction of                           (I.R.S. Employer
incorporation or organization                            Identification No.)

8140 Ward Parkway, Suite 300
Kansas City, Missouri                                           64114
(Address of Principal Executive Offices)                      (Zip Code)

       Registrant's telephone number, including area code :(816)237-7000


Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.  Yes [ ]  No [X]

Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act.  Yes [  ]   No [X]

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. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K (229.405 of this chapter) is not contained  herein,  and will
not be contained,  to the best of registrant's knowledge, in definitive proxy or
information  statements  incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [X]

Indicate by check mark whether the registrant is a large  accelerated  filer, an
accelerated  filer, or a  non-accelerated  filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12-b-2 of the Exchange Act.

Large accelerated filer [ ]   Accelerated filer [ ]   Non-accelerated filer [X]

Indicate by check mark whether the  registrant is a shell company (as defined in
Exchange Act Rule 12b-2).    Yes  No [X]

State the aggregate market value of the voting and non-voting common equity held
by non-affiliates  computed by reference to the price at which the common equity
was last sold, or the average bid and asked price of such common  equity,  as of
the last business day of the registrant's most recently  completed second fiscal
quarter.   Not Applicable.

Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.  Not Applicable.

Documents incorporated by reference:  None



<page>

PART I

Item 1.  Business.

         Not Applicable.

Item 1A. Risk Factors.

         Not Applicable.

Item 1B. Unresolved Staff Comments.

         None.

Item 2.  Properties.

         Not Applicable.

Item 3.  Legal Proceedings.

         The Registrant is not aware of any material legal proceeding with
         respect to, the Company, the Servicer, the Trustee, in each case if
         applicable, as related to the Trust.

Item 4.  Submission of Matters to a Vote of Security Holders.

         None.

PART II

Item 5.  Market for Registrant's Common Equity, Related Stockholder Matters
         and Issuer Purchases of Equity Securities.

         Currently,   there  is   no  established   secondary   market  for  the
         Certificates  known to  the  Registrant.  As of December 31, 2005,  the
         number of  holders of each class of offered  certificates  was 76 based
         on records  provided by The Depository Trust Company.

Item 6.  Selected Financial Data

         Not Applicable.

Item 7.  Management's Discussion and Analysis of Financial condition and
         Results of Operation.

         Not Applicable.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

         Not Applicable.

Item 8.  Financial Statements and Supplementary Data.

         Not Applicable.

Item 9.  Changes in and Disagreements with Accountants on Accounting and
         Financial Disclosure.

         There was no change of accountants or disagreement with accountants
         on any matter of accounting principles or practices or financial
         disclosure.

Item 9A. Controls and Procedures.

         Not Applicable.

Item 9B. Other Information.

         Not Applicable.

                                      -2-

<page>

PART III

Item 10. Directors and Executive Officers of the Registrant.

         Not Applicable.

Item 11. Executive Compensation.

         Not Applicable.

Item 12. Security Ownership of Certain Beneficial Owners and Management and
         Related Stockholder Matters.

         Not Applicable.

Item 13. Certain Relationships and Related Transactions.

         No reportable transactions have occurred.

Item 14. Principal Accounting Fees and Services.

         Not applicable.

PART IV

Item 15. Exhibits, Financial Statement Schedules.

(a) The following documents are filed as part of this report:

    (1)  Financial Statements:

         Not Applicable.

    (2)  Financial Statement Schedules:

         Not Applicable.

    (3)  Exhibits:

         Rule 13a-14(a)/15d-14(a) Certification, filed as Exhibit 31.1 hereto.

         Report of Independent Registered Public Accounting Firm with
         Management Assertion, filed as Exhibit 99.1 hereto.

         Annual Statement as to Compliance, filed as Exhibit 99.2 hereto.

(b)  The exhibits required to be filed by Registrant pursuant to Item 601 of
     Regulation S-K are listed above and in the Exhibit Index that immediately
     follows the signature page hereof.

(c)  Not Applicable.


                                      -3-
<page>




SIGNATURE

Pursuant to the  requirements of Section 13 or 15(d) 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 Mortgage Funding Corporation

                       By:  /s/  Gregory S. Metz
                            -----------------------------
                     Name:  Gregory S. Metz
                    Title:  Senior Vice President
                     Date:  March 29, 2006



                                      -4-
<PAGE>

SUPPLEMENTAL  INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.

The  registrant  has not sent an annual report or proxy material to its security
holders.  The registrant  will not be sending an annual report or proxy material
to its security holders subsequent to the filing of this form.

                                      -5-
<PAGE>



                                 EXHIBIT INDEX

Exhibit  Description

31.1     Rule 13a-14(a)/15d-14(a) Certification

99.1     Report of Independent Registered Public Accounting Firm
         with Management Assertion

         NovaStar Mortgage, Inc.

99.2     Annual Statement as to Compliance

         NovaStar Mortgage, Inc.

                                      -6-
<page>

                                  Exhibit 31.1
                 Annual Rule 13a-14(a)/15d-14(a) Certification
                                  -----------

                                CERTIFICATION
                 NovaStar Mortgage Funding Trust, Series 2005-2
        NovaStar Home Equity Loan Asset-Backed Certificates, Series 2005-2

                  I, Gregory S. Metz, certify that:

1.   I have reviewed  this annual  report on Form 10-K,  and all reports on Form
     8-K  containing  distribution  and  servicing  reports  filed in respect of
     periods  included  in the year  covered  by this  annual  report,  NovaStar
     Mortgage   Funding   Trust,   Series  2005-2   NovaStar  Home  Equity  Loan
     Asset-Backed Certificates, Series 2005-2 (the "Trust");

2.   Based on my knowledge,  the information in these reports, taken as a whole,
     does not contain any untrue statement of a material fact or omit to state a
     material  fact  necessary  to make  the  statements  made,  in light of the
     circumstances  under which such  statements were made, not misleading as of
     the last day of the period covered by this annual report;

3.   Based on my knowledge, the distribution information required to be prepared
     by the Trustee based upon the servicing information required to be provided
     by each Servicer  under the Pooling and Servicing  Agreement is included in
     these reports;

4.   Based on my knowledge and upon the annual compliance statements included in
     the report and required to be delivered to the Trustee in  accordance  with
     the terms of the Pooling and Servicing  Agreement,  and except as disclosed
     in the report, the Servicer has fulfilled its obligations under the Pooling
     and Servicing Agreement; and

5.   The  reports  disclose  all  significant   deficiencies  relating  to  each
     Servicer's  compliance with the minimum servicing  standards based, in each
     case, upon the report provided by an independent public  accountant,  after
     conducting  a review in  compliance  with the  Uniform  Single  Attestation
     Program  for  Mortgage  Bankers  or  similar  standard  as set forth in the
     Pooling and Servicing Agreement, that is included in these reports.

In giving the  certifications  above,  I have  reasonably  relied on information
provided to me by the following  parties:  NovaStar  Mortgage,  Inc., as Seller,
Wachovia Bank, N.A. as Custodian and JPMorgan Chase Bank, as Trustee.

                              NovaStar Mortgage Funding Corporation

                         By:  /s/  Gregory S. Metz
                              -----------------------------
                       Name:  Gregory S. Metz
                      Title:  Senior Vice President
                       Date:  March 29, 2006


                                      -7-
<page>



                                  EXHIBIT 99.1
            Report of Independent Registered Public Accounting Firm
                           with Management Assertion
                                ---------------


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors of
NovaStar Mortgage, Inc. and subsidiaries
Kansas City, Missouri

     We have examined  management's  assertion that NovaStar  Mortgage,  Inc. (a
wholly  owned  subsidiary  of NovaStar  Financial,  Inc.) (the  "Company"),  has
complied as of and for the year ended  December 31, 2005,  with its  established
minimum servicing standards described in the accompanying Management's Assertion
dated March 22, 2006.  Management is  responsible  for the Company's  compliance
with those minimum  servicing  standards.  Our  responsibility  is to express an
opinion on management's  assertion about the Company's  compliance  based on our
examination.

     Our  examination  was conducted in accordance  with  attestation  standards
established  by the  American  Institute  of Certified  Public  Accountants,  as
adopted by the  Public  Company  Accounting  Oversight  Board and,  accordingly,
included  examining,  on a test basis,  evidence about the Company's  compliance
with its minimum servicing standards and performing such other procedures, as we
considered  necessary  in the  circumstances.  We believe  that our  examination
provides a reasonable basis for our opinion.  Our examination does not provide a
legal  determination  on the  Company's  compliance  with its minimum  servicing
standards.

     In our opinion,  management's  assertion that the Company complied with the
aforementioned minimum servicing standards as of and for the year ended December
31, 2005, is fairly stated, in all material respects,  based on the criteria set
forth in Appendix I.


/s/ Deloitte & Touche, LLP
--------------------------------
March 22, 2006


                                      -8-
<page>


NovaStar Mortgage, Inc.
8140 Ward Parkway
Suite 300
Kansas City, Missouri  64114


MANAGEMENT'S ASSERTION

March 28, 2005

     As of and for the year ended  December 31, 2004,  NovaStar  Mortgage,  Inc.
(the "Company") (a wholly owned  subsidiary of NovaStar  Financial,  Inc.),  has
complied,  in all material  respects,  with the  Company's  established  minimum
servicing standards for single-family residential mortgage loans as set forth in
Appendix I (the  "Standards").  The Standards are based on the Mortgage  Bankers
Association  of  America's  Uniform  Single  Attestation  Program  for  Mortgage
Bankers.

     As of and for this same period,  the Company had in effect a fidelity  bond
in the amount of $3,000,000  and errors and omissions  coverage in the amount of
$5,000,000 on any one mortgage.

Sincerely,

/s/ W. Lance Anderson
-----------------------
W. Lance Anderson
President

/s/ Gregory S. Metz
-----------------------
Gregory S. Metz
Senior Vice President and Secretary


/s/ Christopher S. Miller
-------------------------
Christopher S. Miller
Senior Vice President

                                      -9-
<page>

NOVASTAR MORTGAGE, INC.

APPENDIX I - MINIMUM SERVICING STANDARDS AS SET FORTH IN THE MORTGAGE
BANKERS ASSOCIATION OF AMERICA'S UNIFORM SINGLE ATTESTATION PROGRAM FOR
MORTGAGE BANKERS


I.   CUSTODIAL BANK ACCOUNTS

     1.   Reconciliations shall be prepared on a monthly basis for all custodial
          bank   accounts   and   related   bank   clearing   accounts.    These
          reconciliations shall:

          .    Be mathematically accurate

          .    Be prepared within forty-five (45) calendar days after the cutoff
               date

          .    Be reviewed and approved by someone other than the person who
               prepared the reconciliation

          .    Document explanations for reconciling items. These reconciling
               items shall be resolved within ninety (90) calendar days of
               their original identification.

     2.   Funds of the  servicing  entity shall be advanced in cases where there
          is an overdraft in an investor's or a mortgagor's account.


     3.   Each  custodial  account shall be  maintained  at a federally  insured
          depository institution in trust for the applicable investor.

     4.   Escrow  funds held in trust for a  mortgagor  shall be returned to the
          mortgagor  within  thirty (30) calendar days of payoff of the mortgage
          loan.

II.    MORTGAGE PAYMENTS

     1.   Mortgage  payments shall be deposited into the custodial bank accounts
          and  related  bank  clearing  accounts  within  two  business  days of
          receipt.

     2.   Mortgage  payments  made  in  accordance  with  the  mortgagor's  loan
          documents shall be posted to the applicable  mortgagor  records within
          two business days of receipt.

     3.   Mortgage   payments   shall  be  allocated  to  principal,   interest,
          insurance,  taxes,  or  other  escrow  items  in  accordance  with the
          mortgagor's loan documents.

     4.   Mortgage  payments  identified  as loan payoffs  shall be allocated in
          accordance with the mortgagor's loan documents.

III.   DISBURSEMENTS

     1.   Disbursements  made via wire  transfer  on  behalf of a  mortgagor  or
          investor shall be made only by authorized personnel.

     2.   Disbursements  made on  behalf of a  mortgagor  or  investor  shall be
          posted  within two  business  days to the  mortgagor's  or  investor's
          records maintained by the servicing entity.

     3.   Tax and insurance  payments  shall be made on or before the penalty or
          insurance  policy  expiration  dates,  as  indicated  on tax bills and
          insurance  premium notices,  respectively,  provided that such support
          has  been  received  by the  servicing  entity  at least  thirty  (30)
          calendar days prior to these dates.

     4.   Any late payment penalties paid in conjunction with the payment of any
          tax bill or insurance  premium notice shall be paid from the servicing
          entity's  funds and not  charged  to the  mortgagor,  unless  the late
          payment was due to the mortgagor's error or omission.

     5.   Amounts  remitted to investors  per the  servicer's  investor  reports
          shall  agree  with  cancelled  checks,  or other form of  payment,  or
          custodial bank statements.

     6.   Unused  checks  shall be  safeguarded  so as to  prevent  unauthorized
          access.

IV.    INVESTOR ACCOUNTING AND REPORTING

     1.   The servicing entity's investor reports shall agree with, or reconcile
          to,  investors'  records  on a monthly  basis as to the  total  unpaid
          principal  balance  and  number  of loans  serviced  by the  servicing
          entity.

V.     MORTGAGOR LOAN ACCOUNTING

     1.   The  servicing  entity's  mortgage  loan records  shall agree with, or
          reconcile  to, the records of  mortgagors  with  respect to the unpaid
          principal balance on a monthly basis.

     2.   Adjustments  on ARM  loans  shall be  computed  based  on the  related
          mortgage note and any ARM rider.

     3.   Escrow accounts shall be analyzed,  in accordance with the mortgagor's
          loan documents, on at least an annual basis.

     4.   Interest on escrow accounts shall be paid, or credited,  to mortgagors
          in accordance with the applicable state laws.

VI.    DELINQUENCIES

     1.   Records documenting  collection efforts shall be maintained during the
          period a loan is in default  and shall be  updated  at least  monthly.
          Such records  shall  describe the entity's  activities  in  monitoring
          delinquent  loans  including,  for example,  phone calls,  letters and
          mortgage payment  rescheduling plans in cases where the delinquency is
          deemed temporary (e.g., illness or unemployment).

VII.   INSURANCE POLICIES

     1.   A fidelity bond and errors and omissions  policy shall be in effect on
          the servicing entity  throughout the reporting period in the amount of
          coverage represented to investors in management's assertion.

                                      -10-

<page>

                                  EXHIBIT 99.2
                       Annual Statement as to Compliance
                                 --------------

                             NOVASTAR MORTGAGE, INC.
                             CERTIFICATE OF OFFICERS

                                 March 22, 2006

    Christopher  S.  Miller,  Senior  Vice  President  of  Servicing  (Servicing
Officer) and Gregory S. Metz, Senior Vice President and Chief Financial Officer,
of NovaStar Mortgage,  Inc., a Virginia  corporation,  (Servicer) hereby certify
the following:

(i)  We have  performed a review of the  activities  of the Servicer  during the
     preceding  calendar  year and  performance  under the  various  Pooling and
     Servicing  Agreements (see attached  Exhibit A) to which we are a party has
     been made under our supervision,

(ii) To the  best of our  knowledge,  based on such  review,  the  Servicer  has
     fulfilled its obligations under this Agreement in all material respects for
     such year,  and, there has been no default in the fulfillment of any of its
     obligations, and

(iii)No Subservicers have performed any duties on behalf of NovaStar Mortgage,
     Inc.


/s/  Christopher S. Miller
---------------------------------------
Christopher S. Miller
Senior Vice President of Servicing
(Servicing Officer)

/s/  Gregory S. Metz
------------------------------------------------
Gregory S. Metz
Senior Vice President and Chief Financial Officer



NovaStar Mortgage, Inc.
Exhibit A to Certificate of Officers
March 22, 2006
-----------------------------------------------

Servicing Agreement                                 Date of Pooling Description

NovaStar Mortgage Funding Trust, Series 2000-1          March 1, 2000
NovaStar Mortgage Funding Trust, Series 2000-2          September 1, 2000
NovaStar Mortgage Funding Trust, Series 2001-1          March 1, 2001
NovaStar Mortgage Funding Trust, Series 2001-2          September 1, 2001
NovaStar Mortgage Funding Trust, Series 2002-1          March 1, 2002
NovaStar Mortgage Funding Trust, Series 2002-2          June 1, 2002
NovaStar Mortgage Funding Trust, Series 2002-3          September 1, 2002
NovaStar Mortgage Funding Trust, Series 2003-1          February 1, 2003
NovaStar Mortgage Funding Trust, Series 2003-2          June 1, 2003
NovaStar Mortgage Funding Trust, Series 2003-3          September 1, 2003
NovaStar Mortgage Funding Trust, Series 2003-4          November 1, 2003
NovaStar Mortgage Funding Trust, Series 2004-1          March 1, 2004
NovaStar Mortgage Funding Trust, Series 2004-2          June 1, 2004
NovaStar Mortgage Funding Trust, Series 2004-3          September 1, 2004
NovaStar Mortgage Funding Trust, Series 2004-4          November 1, 2004
NovaStar Mortgage Funding Trust, Series 2005-1          February 1, 2005
NovaStar Mortgage Funding Trust, Series 2005-2          May 1, 2005
NovaStar Mortgage Funding Trust, Series 2005-3          September 1, 2005
NovaStar Mortgage Funding Trust, Series 2005-4          December 1, 2005

                                      -11-