<PAGE>

Exhibit 10.7b

                      SEVENTH AMENDMENT TO MORTGAGE LOAN
                             WAREHOUSING AGREEMENT


     THIS SEVENTH AMENDMENT TO MORTGAGE LOAN WAREHOUSING AGREEMENT (the
"Amendment") is made as of the ___ day of December, 1999, by and between
NOVASTAR MORTGAGE, INC., a Virginia corporation ("NovaStar Mortgage"), NOVASTAR
FINANCIAL, INC., a Maryland corporation ("NovaStar Financial"), NOVASTAR
CAPITAL, INC., a Delaware corporation ("NovaStar Capital" and, together with
NovaStar Mortgage, and NovaStar Financial, the "Companies") and FIRST UNION
NATIONAL BANK (formerly known as First Union National Bank of North Carolina), a
national banking association (the "Lender").

                                  WITNESSETH

     WHEREAS, the Companies and the Lender are parties to a Mortgage Loan
Warehousing Agreement dated as of November 24, 1997, as amended by a First
Amendment to Mortgage Loan Warehousing Agreement dated as of February 19, 1998,
by a Second Amendment to Mortgage Loan Warehousing Agreement dated as of April
30, 1998, by a Third Amendment to Mortgage Loan Warehousing Agreement dated as
of September 3, 1998, by a Fourth Amendment to and Waiver of Mortgage Loan
Warehousing Agreement dated as of October 15, 1998, by a Fifth Amendment to
Mortgage Loan Warehousing Agreement dated as of November 30, 1998 and by a Sixth
Amendment to Mortgage Loan Warehousing Agreement dated as of February 12, 1999
(as so amended, the "Credit Agreement"); and

     WHEREAS, the parties wish to amend the Credit Agreement as set forth below;
and

     WHEREAS, subject to and upon the terms and conditions herein set forth, the
Lender is willing to continue to make available to the Companies the credit
facilities provided for in the Credit Agreement; and

     WHEREAS, a specific condition to the willingness of the Lender to continue
to make available to the Companies the credit facilities provided for in the
Credit Agreement is the reaffirmation by the Guarantor of the Guaranty; and

     WHEREAS, the Guarantor will derive a material benefit from the continued
availability to the Companies of the credit facilities provided for in the
Credit Agreement, and therefore the Guarantor is willing to reaffirm the
Guaranty;

     NOW, THEREFORE, in consideration of the premises and agreements contained
herein and for good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged by the parties hereto, the parties hereto hereby
agree as follows:

     1.   Definitions.  All capitalized terms used herein and not otherwise
          -----------
defined shall have the respective meanings provided to such terms in the Credit
Agreement, as amended hereby.
<PAGE>

     The definition of the term "Maturity Date" contained in Section 10 of the
Credit Agreement is deleted in its entirety and the following paragraph is
substituted in lieu thereof:

          "'Maturity Date' shall mean the earlier of (a) June 1, 2000, as such
     date may be extended from time to time in writing by the Lender, in its
     sole discretion, and (b) the date the Lender terminates its obligation to
     make further Loans pursuant to the provisions hereof."

     3.   This Amendment shall become effective as of the date hereof, provided
that the Lender shall have received by such date the following items:

          a.   A copy of this Amendment executed by each of the Companies, the
               Guarantor and the Lender (whether such parties have signed the
               same or different copies);

          b.   A reaffirmation of the Guaranty (the "Reaffirmation") executed by
               the Guarantor in favor of the Lender;

          c.   Resolutions of each of the Companies and the Guarantor
               authorizing the execution of this Amendment and the
               Reaffirmation, respectively; and

          d.   A certificate of even date herewith signed by the President, any
               Vice President or the Treasurer of each of the Companies and the
               Guarantor certifying that (i) the articles, bylaws and
               resolutions of each of the Companies and the Guarantor previously
               delivered to Lender remain in full force and effect except as
               provided therein, (ii) each of the Companies and the Guarantor
               remains in good standing, (iii) all representations and
               warranties of each of the Companies and the Guarantor previously
               made to Lender remain true, complete and accurate, and (iv) no
               Event of Default or Potential Default has occurred and is
               continuing.

     4.   This Amendment is limited, and except as set forth herein, shall not
constitute the modification, acceptance or waiver of any provision of the Credit
Agreement, or any other document or instrument entered into in connection
therewith.

     5.   This Amendment may be executed in any number of counterparts by the
different parties hereto on separate counterparts, each of which counterparts
when executed and delivered shall be an original, but all of which together
shall constitute one in the same instrument. A complete set of counterparts
shall be lodged with each of the Companies and the Lender.

     6.   This Amendment and the rights and obligations of the parties hereunder
shall be construed in accordance with and governed by the laws of the State of
North Carolina.
<PAGE>

     7.   From and after the date hereof all references in the Credit Agreement
and any other document or instrument entered into in connection therewith, to
the Credit Agreement shall be named to be references to the Credit Agreement as
amended hereby.

     8.   The Guarantor joins in the execution and delivery of this Amendment to
acknowledge and consent to the terms hereof and hereby reaffirms its obligations
under the Guaranty.

     9.   THE LENDER, THE GUARANTOR AND THE COMPANIES EACH HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY LAW, THE RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN
RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN
CONNECTION WITH THIS AMENDMENT OR ANY COURSE OF CONDUCT, COURSE OF DEALING,
STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY RELATING
HERETO. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE LENDER TO ENTER
INTO THIS AGREEMENT.








IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed
as of
<PAGE>

the day and year first above written.

                                        NOVASTAR MORTGAGE, INC.,
                                        a Virginia corporation

                                        By:
                                             Name: _______________________
                                             Title: Treasurer


                                        NOVASTAR FINANCIAL, INC.,
                                        a Maryland corporation

                                        By:
                                             Name: _______________________
                                             Title: Secretary


                                        NOVASTAR CAPITAL, INC,
                                        a Delaware corporation

                                        By:
                                             Name: _______________________
                                             Title:_______________________


                                        FIRST UNION NATIONAL BANK
                                        (formerly known as First Union
                                        National Bank of North Carolina), a
                                        national banking association

                                        By:
                                             Name:
                                             Title:

                                        GUARANTOR:

                                        NFI HOLDING CORPORATION,
                                        a Delaware corporation

                                        By:
                                             Name: _______________________
                                             Title: Treasurer


                              First Union National Bank
                               One First Union Center
<PAGE>

                         301 South College Street
                   Charlotte, North Carolina 28288-0610



NovaStar Financial, Inc.
NovaStar Capital, Inc.
NovaStar Mortgage, Inc.
1901 West 47th Place, Suite 105
Westwood, Kansas 66205


                                                          December 17, 1999


Gentlemen:

     Reference is made to that certain Master Repurchase Agreement dated as
of February 12, 1999 (together with the Addendum to the Master Repurchase
Agreement dated as of February 12, 1999) among NovaStar Financial, Inc.
("NFI"), NovaStar Capital, Inc. ("NCI") and NovaStar Mortgage, Inc. ("NSM"
and together with NFI and NCI, each, individually and jointly and
severally, "Seller") and First Union National Bank ("Buyer") (as amended,
modified, restated or supplemented from time to time, to be the
"Agreement").

     Seller has requested that Buyer amend the Agreement as hereinafter set
forth and Buyer is willing to do so on the terms and conditions hereinafter
set forth.

     Seller and Buyer agree that the following definitions set forth in
Section 2 of the Agreement are hereby amended in its entirety as follows:

     "Maximum Purchase Amount" shall mean $175,000,000.

     "Term" shall mean the period commencing on February 12, 1999 and
ending on June 1, 2000.


     Seller represents and warrants that (a) except as specifically set
forth herein, the Agreement, and all other documents, instruments and
agreements executed and/or delivered in connection therewith, shall remain
in full force and effect, and are hereby ratified and confirmed,

  (b)   this letter and the Agreement, as amended hereby, constitute legal,
        valid and binding obligations of Seller and are enforceable against
        Seller in accordance with their respective terms,

  (c)   no Event of Default or Default has occurred and is continuing or
        would exist after giving effect to this letter and (d) Seller has
        no defense, counterclaim or offset with respect to the Agreement.
<PAGE>

          The execution, delivery and effectiveness of this letter shall
     not operate as a waiver of any right, power or remedy of Buyer, nor
     constitute a waiver of any provision of the Agreement, or any other
     documents, instruments or agreements executed and/or delivered
     thereunder or in connection therewith.

   This letter may be executed by the parties hereto in one or more
counterparts, each of which shall be deemed an original and all of which
taken together shall constitute one and the same agreement. Any signature
delivered by a party via telecopier shall be deemed an original signature
hereto.


               [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>

     If you are in agreement with the foregoing, kindly execute this letter
agreement ("Letter Agreement") in the space provided below and return same
to the undersigned. This Letter Agreement shall become effective upon
Buyer's receipt of four (4) copies of this Letter Agreement executed by
each of the undersigned.


                                        Very truly yours,

                                        FIRST UNION NATIONAL BANK


                                        By:
                                             Name:
                                             Title:

                                        CONSENTED AND AGREED TO:

                                        NOVASTAR FINANCIAL, INC, as a Seller


                                        By:
                                             Name:
                                             Title:

                                        NOVASTAR MORTGAGE, INC., as a Seller


                                        By:
                                             Name:
                                             Title:

                                        NOVASTAR CAPITAL, INC. as a Seller


                                        By:
                                             Name:
                                             Title:


                    SIGNATURES CONTINUED ON NEXT PAGE)
<PAGE>

     If you are in agreement with the foregoing, kindly execute this letter
agreement ("Letter Agreement") in the space provided below and return same
to the undersigned. This Letter Agreement shall become effective upon
Buyer's receipt of four (4) copies of this Letter Agreement executed by
each of the undersigned.

                                        Very truly yours,

                                        FIRST UNION NATIONAL BANK


                                        By:
                                             Name:
                                             Title:

                                        CONSENTED AND AGREED TO:

                                        NOVASTAR FINANCIAL, INC, as a Seller


                                        By:
                                             Name:
                                             Title:

                                        NOVASTAR MORTGAGE, INC., as a Seller


                                        By:
                                             Name:
                                             Title:

                                        NOVASTAR CAPITAL, INC. as a Seller


                                        By:
                                             Name:
                                             Title:

                                        NOVASTAR MORTGAGE, INC., as a Servicer


                                        By:
                                             Name:
                                             Title:

                                        NFI HOLDING CORPORATION, as Guarantor


                                        By:
                                             Name:
                                             Title:

                         First Union Corporation
<PAGE>

                          One First Union Center
                         301 South College Street
                   Charlotte, North Carolina 28288-0610



          NovaStar Certificates Financing Corporation
          1901 West 47th Place, Suite 105
          Westwood, Kansas 66205


                                                  December 17, 1999


          Gentlemen:

     Reference is made to that certain Master Repurchase Agreement dated as
of February 12, 1999 (together with the Addendum to the Master Repurchase
Agreement dated as of February 12, 1999 "Addendum") among NovaStar
Certificates Financing Corporation ("Seller") and First Union Corporation
as buyer (Buyer) (as amended, modified, restated or supplemented from time
to time, the Agreement)

     Seller has requested that Buyer amend the Agreement as hereinafter set
forth and Buyer is willing to do so on the terms and conditions hereinafter
set forth.

     Seller and Buyer agree that the following definitions set forth in
Section 2 of the Agreement are hereby amended in their entirety as follows:

     "Maximum Purchase Amount" at any date shall mean $25,000,000 less the
aggregate amount of the Repurchase Prices owed to Buyer under and pursuant
to the NRFC Repurchase Agreement at such date.

     "Term" shall mean the period commencing on February 12, 1999 and
ending on December 17,2001.

     Seller and Buyer agree that Paragraph 27(n) of the Addendum is hereby
amended in its entirety as follows:

     "(n) The Seller shall pay Buyer an annual repo fee of $250,000 payable
on each of January 31, 2000 and on January 31, 2001. Such fee shall be
deemed earned in full on the scheduled payment date and shall not be
subject to rebate or proration upon termination of this
<PAGE>

Agreement for any reason."


     Seller represents and warrants that (a) except as specifically set
forth herein, the Agreement, and all other documents, instruments and
agreements executed and/or delivered in connection therewith, shall remain
in full force and effect, and are hereby ratified and confirmed, (b) this
letter and the Agreement, as amended hereby, constitute legal, valid and
binding obligations of Seller and are enforceable against Seller in
accordance with their respective terms, (c) no Event of Default or
<PAGE>

Default has occurred and is continuing or would exist after giving effect
to this letter and (d) Seller has no defense, counterclaim or offset with
respect to the Agreement.

The execution, delivery and effectiveness of this letter shall not operate as a
waiver of any right, power or remedy of Buyer, nor constitute a waiver of any
provision of the Agreement, or any other documents, instruments or agreements
executed and/or delivered thereunder or in connection therewith.

This letter may be executed by the parties hereto in one or more counterparts,
each of which shall be deemed an original and all of which taken together shall
constitute one and the same agreement. Any signature delivered by a party via
telecopier shall be deemed an original signature hereto.

If you are in agreement with the foregoing, kindly execute this letter agreement
("Letter Agreement") in the space provided below and return same to the
undersigned. This Letter Agreement shall become effective upon Buyer's receipt
of four (4) copies of this Letter Agreement executed by each of the undersigned.

                                        Very truly yours,

                                        FIRST UNION CORPORATION,
                                         as Buyer


                                        By:
                                             Name:
                                             Title:

                                        CONSENTED AND AGREED TO:

                                        NOVASTAR CERTIFICATES FINANCING
                                         CORPORATION, as a Seller


                                        By:
                                             Name:
                                             Title:

                                        NOVASTAR FINANCIAL, INC., as a Guarantor


                                             Name:
                                             Title:

<PAGE>

     The execution, delivery and effectiveness of this letter shall not
operate as a waiver of any right, power or remedy of Buyer, nor constitute
a waiver of any provision of the Agreement, or any other documents,
instruments or agreements executed and/or delivered thereunder or in
connection therewith.

This letter may be executed by the parties hereto in one or more counterparts,
each of which shall be deemed an original and all of which taken together shall
constitute one and the same agreement. Any signature delivered by a party via
telecopier shall be deemed an original signature hereto.

If you are in agreement with the foregoing, kindly execute this letter agreement
("Letter Agreement") in the space provided below and return same to the
undersigned. This Letter Agreement shall become effective upon Buyer's receipt
of four (4) copies of this Letter Agreement executed by each of the undersigned.

                                        Very truly yours,

                                        FIRST UNION CORPORATION,
                                        as Buyer


                                        By:
                                             Name:
                                             Title:

                                        CONSENTED AND AGREED TO:

                                        NOVASTAR CERTIFICATES FINANCING
                                         CORPORATION, as a Seller


                                        By:
                                             Name:
                                             Title:


                                        NOVASTAR FINANCIAL, INC., as a Guarantor


                                        By:
                                             Name:
                                             Title:
<PAGE>

                         First Union Corporation
                          One First Union Center
                         301 South College Street
                   Charlotte, North Carolina 28288-0610


          NovaStar REMIC Financing Corporation
          1901 West 47th Place, Suite 105
          Westwood, Kansas 66205

                                                          December 17, 1999

          Gentlemen:

     Reference is made to that certain Master Repurchase Agreement dated as
of February 12, 1999 (together with the Addendum to the Master Repurchase
Agreement dated as of February 12, 1999 "Addendum") among NovaStar REMIC
Financing Corporation. ("Seller") and First Union Corporation as buyer
("Buyer") (as amended, modified, restated or supplemented from time to
time, the "Agreement").

     Seller has requested that Buyer amend the Agreement as hereinafter set
forth and Buyer is willing to do so on the terms and conditions hereinafter
set forth.

     Seller and Buyer agree that the following definitions set forth in
Section 2 of the Agreement are hereby amended in their entirety as follows:

     "Maximum Purchase Amount" at any date shall mean $25,000,000 less the
aggregate amount of the Repurchase Prices owed to Buyer under and pursuant
to the NCFC Repurchase Agreement at such date.

     "Term" shall mean the period commencing on February 12, 1999 and
ending on December 17,2001.

     Seller and Buyer agree that Paragraph 27(n) of the Addendum is hereby
amended in its entirety as follows:

     "(n) The Seller shall pay Buyer an annual repo fee of $250,000 payable
on each of January 31, 2000 and on January 31, 2001. Such fee shall be
deemed earned in full on the scheduled payment date and shall not be
subject to rebate or proration upon termination of this Agreement for any
reason.


     Seller represents and warrants that (a) except as specifically set
forth herein, the Agreement, and
<PAGE>

all other documents, instruments and agreements executed and/or delivered
in connection therewith, shall remain in full force and effect, and are
hereby ratified and confirmed, (b) this letter and the Agreement, as
amended hereby, constitute legal, valid and binding obligations of Seller
and are enforceable against Seller in accordance with their respective
terms,
<PAGE>

(c) no Event of Default or Default has occurred and is continuing or would exist
after giving effect to this letter and (d) Seller has no defense, counterclaim
or offset with respect to the Agreement.


     The execution, delivery and effectiveness of this letter shall not
operate as a waiver of any right, power or remedy of Buyer, nor constitute
a waiver of any provision of the Agreement, or any other documents,
instruments or agreements executed and/or delivered thereunder or in
connection therewith.

     This letter may be executed by the parties hereto in one or more
counterparts, each of which shall be deemed an original and all of which
taken together shall constitute one and the same agreement. Any signature
delivered by a party via telecopier shall be deemed an original signature
hereto.


               [REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]
<PAGE>

     If you are in agreement with the foregoing, kindly execute this letter
agreement ("Letter Agreement") in the space provided below and return same
to the undersigned. This Letter Agreement shall become effective upon
Buyer's receipt of four (4) copies of this Letter Agreement executed by
each of the undersigned.


                                        Very truly yours,

                                        FIRST UNION CORPORATION,
                                        as Buyer


                                        By:
                                             Name:
                                             Title:

                                        CONSENTED AND AGREED TO:

                                        NOVASTAR REMIC FINANCING CORPORATION,
                                         as a Seller


                                        By:
                                             Name:
                                             Title:

                                        NOVASTAR MORTGAGE, INC., as a Guarantor


                                        By:
                                             Name:
                                             Title:

                                        NOVASTAR FINANCIAL, INC. as a Guarantor


                                        By:
                                             Name:
                                             Title:

                                        NFI HOLDING CORPORATION, as Guarantor


                                        By:
                                             Name:
                                             Title:
<PAGE>

     If you are in agreement with the foregoing, kindly execute this letter
agreement ("Letter Agreement") in the space provided below and return same
to the undersigned. This letter Agreement shall become effective upon
Buyer's receipt of four (4) copies of this Letter Agreement executed by
each of the undersigned.


                                        Very truly yours,

                                        FIRST UNION CORPORATION,
                                        as Buyer


                                        By:
                                             Name:
                                             Title:

                                        CONSENTED AND AGREED TO:

                                        NOVASTAR REMIC FINANCING CORPORATION,
                                         as a Seller


                                        By:
                                             Name:
                                             Title:

                                        NOVASTAR MORTGAGE, INC., as a Guarantor


                                        By:
                                             Name:
                                             Title:

                                        NOVASTAR FINANCIAL, INC. as a Guarantor


                                        By:
                                             Name:
                                             Title:

                                        NFI HOLDING CORPORATION, as Guarantor


                                        By:
                                             Name:
                                             Title: