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, 2004

[  ]     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 333-114297-01

                    NOVASTAR MORTGAGE FUNDING CORPORATION
             (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

                 NovaStar Mortgage Funding Trust, Series 2004-2
       NovaStar Home Equity Loan Asset-Backed Certificates, Series 2004-2
            (Title of each class of securities covered by this Form)

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 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 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 an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes  No [X]

Documents incorporated by reference: None



<page>

PART I

Item 1.  Business.

         Not Applicable.

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.

No  matter  was  submitted  to a vote  or  consent  of  Holders  of the  Offered
Certificates during the fiscal year covered by this report.

PART II

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

     The Trust does not issue stock. There is currently no established secondary
market for the  Certificates.  As of December 31, 2004, the number of holders of
each Class of Offered Certificates was 26.

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.

         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 33.1 hereto.

        Annual  Independent  Accountants'  Servicing Report
        with Management Assertion, filed as Exhibit 99.1 hereto.

        Servicer's Annual Statement as to Compliance,
        filed as Exhibit 99.2 herto.

(b)  Exhibits to this report are listed in Item (15)(a)(3) above.

(c)  Not Applicable.


                                      -3-
<page>

NovaStar Mortgage Funding Trust, Series 2004-2
NovaStar Home Equity Loan Asset-Backed Certificates, Series 2004-2
-----------------------------------------------------------------------


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 31, 2005



                                      -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     Annual Independent Accountant's Servicing Report
         with Management Assertion

         a) NovaStar Mortgage, Inc.

99.2     Servicer's Annual Statement as to Compliance

         a) NovaStar Mortgage, Inc.



                                      -6-
<page>

                                  Exhibit 33.1
                  Annual Rule 13a-14(a)/15d-14(a) Certification
                                   -----------


                                CERTIFICATION
                 NovaStar Mortgage Funding Trust, Series 2004-2
        NovaStar Home Equity Loan Asset-Backed Certificates, Series 2004-2

                  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  2004-2   NovaStar  Home  Equity  Loan
     Asset-Backed Certificates, Series 2004-2 (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 and Secretary
                          Date:  March 31, 2005


                                      -7-
<page>

                                  EXHIBIT 99.1
                Annual Independent Accountant's Servicing Report
                                ---------------

Deloitte & Touche LLP
Kansas City, Missouri 64106-2232
www.deloitte.com


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors of
NovaStar Mortgage, Inc. and subsidiaries:

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,  2004  with its  established  minimum
servicing standards described in the accompanying  Management's  Assertion dated
March 28, 2005.  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 the 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 the 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 December 31,
2004 is fairly stated in all material respects,  based on the criteria set forth
in Appendix I.

By:  /s/ Deloitte & Touche LLP
--------------------------------
March 28, 2005

                                      -8-

<page>

                                  EXHIBIT 99.2
     Report of Management as to Compliance with Minimum Servicing Standards
                              -------------------


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; and
   . 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 in management's assertion.


                                      -10-
<page>

                                  EXHIBIT 99.3
                       Annual Statement as to Compliance
                                 --------------

                             NOVASTAR MORTGAGE, INC.
                             CERTIFICATE OF OFFICERS

                                 March 28, 2005

     Christopher  S.  Miler,  Senior  Vice  President  of  Servicing  (Servicing
Officer) and Gregory S. Metz,  Senior Vice President and Secretary,  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 Secretary



NovaStar Mortgage, Inc.
Exhibit A to Certificate of Officers
March 28, 2005
-----------------------------------------------

Servicing Agreement                                 Date of Pooling Description

NovaStar Mortgage Funding Trust, Series 1999-1             January 1, 1999
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


                                      -11-