MASTER REPURCHASE AGREEMENT
                     (2007 NON-INVESTMENT GRADE SECURITIES)

                                                        Dated as of May 31, 2007

AMONG:

Wachovia  Investment  Holdings,  LLC,  as buyer (the  "Buyer",  which term shall
include any  "Principal"  as defined and  provided  for in Annex I) and Wachovia
Capital Markets, LLC, as agent pursuant hereto ("Agent");

NovaStar Mortgage,  Inc. ("NMI"), as a seller,  NovaStar Certificates  Financing
LLC  ("NCFLLC"),  as a seller and NovaStar  Certificates  Financing  Corporation
("NCFC"),  as a seller  (NMI,  NCFLLC and NCFC,  each a Seller and  jointly  and
severally, collectively the "Sellers"); and

NovaStar  Financial,  Inc. ("NFI"),  as a guarantor and NFI Holding  Corporation
("NFI  Holding"),  as a guarantor  (NFI and NFI  Holding,  each a Guarantor  and
together, jointly and severally, together the "Guarantors").

1.   APPLICABILITY

     Buyer shall,  from time to time,  upon the terms and  conditions  set forth
     herein,  agree to enter  into  transactions  in which  the  related  Seller
     transfers to Buyer Eligible  Assets against the transfer of funds by Buyer,
     with a  simultaneous  agreement by Buyer to transfer to the related  Seller
     such Purchased  Assets at a date certain,  against the transfer of funds by
     the related Seller.  Each such transaction shall be referred to herein as a
     "Transaction",  and, unless otherwise agreed in writing,  shall be governed
     by this Agreement.

2.   DEFINITIONS AND INTERPRETATION

     a.   Defined Terms.

     "2006 Dividend"  shall mean the dividend  distribution to be made by NFI to
comply with U.S.  federal income tax law requirements for REITs to distribute at
least 90% of their REIT taxable income.

     "Adjusted Tangible Net Worth" shall mean at any date:

          (a) Book Net Worth  plus the  notional  amount of any Trust  Preferred
     Securities, minus

          (b) The sum of (1) all assets which would be  classified as intangible
     assets  of  NFI  and  its  consolidated  Subsidiaries  under  GAAP  (except
     purchased and capitalized value of servicing  rights),  including,  without
     limitation,  goodwill (whether representing the excess cost over book value
     of  assets  acquired  or  otherwise),  patents,  trademarks,  trade  names,
     copyrights, franchises and deferred charges (including, without limitation,
     unamortized debt discount and expense,  organization costs and research and
     product  development  costs)  plus


                                       1








     (2) all receivables  from directors,  officers and  shareholders of NFI and
     its consolidated Subsidiaries, minus

          (c) The amount of unrealized  gains on debt  securities (as defined in
     FASB 115) of NFI and any Subsidiaries of NFI Holding, plus

          (d) The amount of unrealized  losses on debt securities (as defined in
     FASB 115) of NFI and any Subsidiaries of NFI Holding.

     Provided  that in all cases such amounts  shall be  determined by combining
     the  relevant  figures for NFI and its  consolidated  Subsidiaries  and its
     Affiliates, as accounted for under the equity method.

     "Affiliate"  means, with respect to any specified Person,  any other Person
controlling or controlled by or under common control with such specified Person.
For the  purposes of this  definition,  "control"  means the power to direct the
management and policies of such Person, directly or indirectly,  whether through
the ownership of voting equity, by contract or otherwise.

     "Agent" means Wachovia Capital Markets, LLC or any successor.

     "Agreement"  means this Master  Repurchase  Agreement (2007  Non-Investment
Grade Securities), as it may be amended, supplemented or otherwise modified from
time to time.

     "Asset-Backed  Security" shall mean either (i) a certificate issued under a
Trust Agreement  representing  100% ownership of a Delaware  business trust that
has issued bonds secured by a pool of Mortgage  Assets  originated in accordance
with the  Underwriting  Standards  of the  applicable  Affiliate  of the related
Seller;  (ii) a subordinated  bond issued by a Delaware  business trust that has
issued bonds under an Indenture  secured by a pool of Mortgage Assets originated
in accordance with the Underwriting Standards of the applicable affiliate of the
related  Seller;  or (iii) a  certificate  issued under a pooling and  servicing
agreement secured by a pool of Mortgage Assets.

     "Book Net  Worth"  shall  mean the  excess  of total  assets of NFI and its
consolidated  Subsidiaries  over Total  Liabilities of NFI and its  consolidated
Subsidiaries  determined in accordance with GAAP (or such non-GAAP principles as
may be disclosed to and approved by Buyer from time to time).

     "Breakage  Costs" shall have the meaning  assigned  thereto in Section 3(c)
herein.

     "Business  Day" means any day other than (i) a Saturday or Sunday or (ii) a
day upon which the New York Stock  Exchange or the Federal  Reserve  Bank of New
York is obligated by law or executive order to be closed.

     "Buyer's  Margin Amount" means,  with respect to any  Transaction as of any
date of  determination,  the amount  obtained by  application  of Buyer's Margin
Percentage to the Repurchase Price for such Transaction as of such date.

     "Buyer's Margin  Percentage" shall have the meaning assigned thereto in the
Side Letter.


                                       2








     "Change of Control"  shall mean any person or group of persons  (other than
(i) any subsidiary of NFI or (ii) any employee or director benefit plan or stock
plan of NFI or any subsidiary of NFI or any trustee or fiduciary with respect to
any such plan when  acting in that  capacity  or any trust  related  to any such
plan) shall have acquired beneficial  ownership of shares representing more than
50% of the combined voting power represented by the outstanding  common stock of
NFI (within the meaning of Section 13(d) or 14(d) of the Securities Exchange Act
of 1934, as amended, and the applicable rules and regulations thereunder).

     "Change of Control Fee" shall have the meaning assigned thereto in the Side
Letter.

     "Change in Law" means (a) the adoption of any law, rule or regulation after
the date of this Agreement,  (b) any change in any law, rule or regulation or in
the  interpretation or application  thereof by any Governmental  Authority after
the date of this  Agreement  or (c)  compliance  by Buyer (or any  Affiliate  of
Buyer) with any request, guideline or directive (whether or not having the force
of law) of any  Governmental  Authority  made or  issued  after the date of this
Agreement.

     "Code" shall mean the Internal Revenue Code of 1986, as amended.

     "Collateral" shall have the meaning assigned thereto in Section 8 hereof.

     "Collateral  Security,  Setoff and Netting  Agreement" means the Collateral
Security,  Setoff and Netting  Agreement  dated as of April 18, 2007 among Buyer
and certain  Affiliates and NFI, NMI and certain Affiliates as it may be further
amended from time to time.

     "Combined  Market Value" means the aggregate  Market Value of the Purchased
Assets and the market value of the servicing rights that are purchased  pursuant
to the Master Repurchase Agreement (2007 Servicing Rights).

     "Commitment  Letter"  means the  commitment  letter,  dated as of April 28,
2007, among the Buyer, the Agent, Wachovia Bank, N.A., NFI and NMI.

     "Confirmation" shall have the meaning assigned thereto in Section 4 hereof.

     "Default"  means any event,  that, with the giving of notice or the passage
of time or both, would constitute an Event of Default.

     "Default Fee" shall have the meaning assigned thereto in the Side Letter.

     "Default Rate" means,  as of any date of  determination,  the lesser of (i)
the Prime Rate plus 4% and (ii) the maximum rate permitted by applicable law.

     "Delinquency  and Loss  Trigger"  shall mean with  respect to any  Eligible
Asset, the threshold set forth in the related securitization transaction that is
included in the related Transaction Notice, if any, for allowable  delinquencies
and losses with respect to such Eligible Asset.


                                       3








     "Dividend  Securities"  shall mean notes,  bonds,  debentures  or common or
preferred stock of NFI or its subsidiaries  that qualify as property and will be
treated as a deductible  dividend to NFI  shareholders  under the Code,  and are
reasonably acceptable to Buyer.

     "Early  Repayment Fee" shall have the meaning  assigned thereto in the Side
Letter.

     "Effective Date" shall mean the date set forth on the top of the first page
of this Agreement.

     "Eligible  Asset" shall mean, in Buyer's sole  discretion,  an Asset-Backed
Security that is either an Eligible NIM Residual,  Eligible Residual or Eligible
Subordinate  Certificate  with respect to which (i) each of the  representations
and  warranties  set forth on  Exhibit C hereto  (notwithstanding  that any such
representations  are made to the best  knowledge  of  Seller)  is  accurate  and
complete as of the date of the related  Confirmation  (and the related Seller by
including  any  security  in any such  Transaction  shall be deemed to make such
representations  and  warranties  to  Buyer  at  and  as of  the  date  of  such
Transaction) and (ii) any related Delinquency and Loss Trigger has not been met.

     "Eligible NIM Residuals"  shall mean a non-rated  mortgage-backed  security
that does not have first priority over cash flows consisting of excess interest,
prepayment penalties, release of over-collateralization or reserve funds, or any
other type of cash flow other than  scheduled  principal  and interest  payments
(collectively,  "Excess Cash  Flow"),  whether such Excess Cash Flow is from the
same  securitization  or from an  underlying  interest or  interests  in another
securitization or securitizations.

     "Eligible  Residual"  means  residual  certificates  issued  from  existing
securitizations   which  include  either  Seller's  originated   first-lien  and
second-lien home loans to sub-prime borrowers,  which residual  certificates may
have  previously been pledged and included in a net interest margin security and
are deemed to be eligible by the Buyer in their sole and absolute discretion.

     "Eligible Subordinate Certificates" means certificates issued from existing
securitizations  which include either Seller's  originated first lien and second
lien home loans to sub prime  borrowers,  which  certificates are rated "Ba1" or
"BB+"  or  below  (including  non-rated)  by a Rating  Agency  (if the  Eligible
Subordinate  Certificates  are rated by more than one Rating Agency,  the lowest
rating  shall  be used  for  purposes  of  determining  eligibility)  and  which
certificates  are  deemed  to be  eligible  by  Buyer  in its  sole  discretion;
provided,  however,  that all rated securities  registered for public sale shall
not be deemed an Eligible  Subordinate  Certificate  until the expiration of any
applicable SEC-mandated "cooling off" period.

     "ERISA" shall mean the Employee  Retirement Income Security Act of 1974, as
amended from time to time.

     "ERISA Affiliate" shall mean any corporation or trade or business that is a
member of any group of  organizations  (i) described in Section 414(b) or (c) of
the Code of which  Seller is a member and (ii) solely for  purposes of potential
liability under Section  302(c)(11) of ERISA and Section  412(c)(11) of the Code
and the lien created  under  Section  302(f) of ERISA and Section  412(n) of the
Code,  described  in  Section  414(m)  or (o) of the Code of which  Seller  is a
member.

     "Event of Default"  shall have the meaning  assigned  thereto in Section 18
hereof.


                                       4








     "Existing Agreements" shall include the agreements and facilities set forth
on Schedule 1 attached hereto.

     "GAAP" shall mean generally  accepted  accounting  principles in the United
States of America in effect from time to time.

     "Governing  Agreement"  shall mean with respect to any Purchased Asset, the
pooling and servicing agreement, indenture or similar agreement.

     "Governmental Authority" shall mean any nation or government,  any state or
other  political  subdivision  thereof,  or  any  entity  exercising  executive,
legislative, judicial, regulatory or administrative functions over any Seller.

     "Guarantee" means, as to any Person, any obligation of such Person directly
or indirectly guaranteeing any Indebtedness of any other Person or in any manner
providing for the payment of any Indebtedness of any other Person.

     "Guarantors" means NFI and NFI Holding.

     "Guaranty" means the Guaranty of the Guarantors,  jointly and severally, in
favor of the Buyer, dated as of May 31, 2007.

     "Income"  means,  with  respect  to any  Purchased  Asset at any time,  any
principal   distributions   thereon  and  all  interest,   dividends  and  other
collections  and  distributions  thereon,  but not including any  commitment nor
origination fees.

     "Indebtedness" shall mean, for any Person: (a) all obligations for borrowed
money;  (b)  obligations  of  such  Person  to  pay  the  deferred  purchase  or
acquisition  price of Property or services,  other than trade  accounts  payable
(other than for borrowed money) arising,  and accrued expenses incurred,  in the
ordinary  course of business so long as such trade accounts  payable are payable
and paid within ninety (90) days of the date the respective  goods are delivered
or the respective services are rendered; (c) indebtedness of others secured by a
lien on the Property of such Person, whether or not the respective  indebtedness
so secured has been  assumed by such  Person;  (d)  obligations  (contingent  or
otherwise) of such Person in respect of letters of credit or similar instruments
issued for account of such Person; (e) capital lease obligations of such Person;
(f) obligations of such Person under repurchase  agreements or like arrangements
financially  equivalent to obligations for borrowed money;  (g)  indebtedness of
others  guaranteed on a recourse  basis by such Person;  (h) all  obligations of
such Person  incurred in connection  with the  acquisition  or carrying of fixed
assets by such Person;  (i)  indebtedness of general  partnerships of which such
Person is a general partner;  and (j) any other  contingent  liabilities of such
Person for the liabilities or obligations of any other Person.

     "Investment  Company  Act" means the  Investment  Company  Act of 1940,  as
amended, including all rules and regulations promulgated thereunder.


                                       5








     "LIBOR"  shall  mean,  for each day of a  Transaction,  a rate based on the
offered rates of the Reference  Banks for one-month  U.S.  dollar  deposits,  as
determined by Buyer for the related Purchase Date.

     "Lien" shall mean, any mortgage,  lien, pledge, charge,  security interest,
option or claim or similar encumbrance.

     "Liquidity" means cash, cash equivalents and the aggregate unused borrowing
capacity under the Existing  Agreements and Other Facilities that could be drawn
against (taking into account required haircuts).

     "Margin  Call"  shall have the  meaning  assigned  thereto in Section  6(a)
hereof.

     "Margin  Deficit" shall have the meaning  assigned  thereto in Section 6(a)
hereof.

     "Market  Value"  means (i) with respect to any  Purchased  Asset that is an
Eligible  Asset,  as of any date of  determination,  the value  ascribed to such
asset by Buyer in its sole  discretion,  and (ii) with  respect  to a  Purchased
Asset that is not an Eligible Asset, zero.

     "Master Repurchase Agreement (2007 Investment Grade Securities)" shall mean
that certain  Master  Repurchase  Agreement,  to be  negotiated,  among Variable
Funding Corp., as buyer,  Wachovia  Capital  Markets,  LLC, as agent,  NMI, as a
seller, NCFLLC, as a seller and NCFC, as a Seller.

     "Master  Repurchase  Agreement  (2007  Servicing  Advance)"  shall mean the
master  repurchase  agreement,  to be negotiated,  among Wachovia Bank,  N.A. as
buyer,  Wachovia Capital Markets, LLC, as agent and [NovaStar Mortgage Inc.], as
seller.

     "Master  Repurchase  Agreement (2007 Servicing  Rights)" means that certain
master  repurchase  agreement (MSR),  dated as of April 25, 2007, among Wachovia
Bank, National Association and NovaStar Mortgage,  Inc., as amended from time to
time.

     "Master  Repurchase  Agreement  (2007  Whole  Loan)"  shall mean the master
repurchase agreement, to be negotiated,  among Wachovia Bank, N.A. as buyer, NFI
Repurchase Corporation,  as a seller, NMI Repurchase  Corporation,  as a seller,
Acceleron Lending Inc., as a seller, NMI Property  Financing,  Inc., as a seller
and Homeview Lending, Inc., as a seller.

     "Master  Repurchase  Agreement  (2007 Whole Loan New York)"  shall mean the
master repurchase agreement,  to be negotiated,  between Wachovia Bank, N.A., as
buyer and NMI, as seller.

     "Material  Adverse  Change"  means  any  material  adverse  change  in  the
business,  financial performance,  assets, operations or condition (financial or
otherwise) of NFI and its consolidated subsidiaries, taken as a whole.

     "Material  Adverse Effect" means (a) a Material Adverse Change with respect
to a Guarantor or a Guarantor and its  Affiliates  that are party to any Program
Document  taken  as a whole;  (b) a  material  impairment  of the  ability  of a
Guarantor or any  Affiliate  that is a party to any Program  Document to perform
under any Program Document and to avoid any Event of Default;  or (c) a


                                       6








material  adverse  effect  upon  the  legality,   validity,  binding  effect  or
enforceability of any Program Document against a Guarantor or any Affiliate that
is a party to any Program Document.

     "Maximum  Aggregate Purchase Price" shall have the meaning assigned thereto
in the Side Letter.

     "Maximum Combined Aggregate Purchase Price" shall have the meaning assigned
thereto in the Side Letter.

     "Mortgage Assets" shall mean home equity loans or mortgage loans originated
by an affiliate of a Seller.

     "Non-Seller  Affiliate"  means an Affiliate of any Seller or Guarantor that
is not, itself, a Seller or Guarantor.

     "Notice Date" shall have the meaning assigned thereto in Section 4 hereof.

     "NFI" means  NovaStar  Financial,  Inc. and its  permitted  successors  and
assigns.

     "NFI Holding" means NFI Holding  Corporation  and its permitted  successors
and assigns.

     "NMI" means  NovaStar  Mortgage,  Inc.  and its  permitted  successors  and
assigns.

     "Obligations"  means (a) all of Sellers' and Guarantors'  obligation to pay
the  Repurchase  Price  on  the  Repurchase  Date,  and  other  obligations  and
liabilities of Sellers and Guarantors, to Buyer or its Affiliates arising under,
or in connection with, the Program Documents or otherwise,  whether now existing
or hereafter  arising;  (b) any and all sums paid by Buyer or on behalf of Buyer
pursuant to the Program  Documents in order to preserve any  Purchased  Asset or
its interest  therein;  (c) in the event of any proceeding for the collection or
enforcement  of any of  Seller's or  Guarantors'  indebtedness,  obligations  or
liabilities  referred to in clause (a),  the  reasonable  expenses of  retaking,
holding,  collecting,  preparing for sale, selling or otherwise  disposing of or
realizing on any Purchased  Asset, or of any exercise by Buyer or such Affiliate
of its  rights  under the  related  agreements,  including  without  limitation,
reasonable  attorneys' fees and  disbursements  and court costs;  and (d) all of
Sellers' and  Guarantors'  obligations to Buyer or any other Person  pursuant to
the Program Documents.

     "Other Facilities" means the repurchase or financing facilities  identified
on Schedule 4 attached hereto.

     "Person"   shall  mean  any  legal  person,   including   any   individual,
corporation,  partnership,  association,  joint-stock  company,  trust,  limited
liability company,  unincorporated  organization,  governmental  entity or other
entity of similar nature.

     "Plan"  shall  mean an  employee  benefit  or  other  plan  established  or
maintained  by Seller or any ERISA  Affiliate  and covered by Title IV of ERISA,
other than a Multiemployer Plan.


                                       7








     "Price  Differential"  means,  with respect to each  Transaction  as of any
date, the aggregate amount obtained by daily application of the Pricing Rate for
such  Transaction  to the  Purchase  Price on a  360-day-per-year  basis for the
actual  number of days  during  the period  commencing  on (and  including)  the
Purchase Date and ending on (but excluding) the date of  determination  (reduced
by any amount of such Price  Differential  in respect of such period  previously
paid by the related Seller to Buyer) with respect to such Transaction.

     "Pricing Rate" shall have the meaning assigned thereto in the Side Letter.

     "Prime Rate" means the daily prime loan rate as reported in The Wall Street
Journal or if more than one rate is published, the highest of such rates.

     "Principal" shall have the meaning given to it in Annex I.

     "Program Documents" means this Agreement,  the Collateral Security,  Setoff
and Netting Agreement,  the Guaranty, the Side Letter, the Commitment Letter and
any other  agreement  entered into by any of the Sellers and/or a Guarantor,  on
the one hand,  and Buyer or one of its  Affiliates  on the other,  in connection
herewith or therewith.

     "Property"  means  any  right or  interest  in or to  property  of any kind
whatsoever, whether real, personal or mixed and whether tangible or intangible.

     "Purchase  Date"  means  the  date  on  which  Purchased  Assets  are to be
transferred by the related Seller to Buyer.

     "Purchase  Price" means the price at which Purchased Assets are transferred
by Sellers to Buyer in a Transaction,  which shall (unless  otherwise agreed) be
equal to the  Purchase  Price  Percentage  times the Market Value of the related
Purchased Assets.

     "Purchase Price  Percentage" shall have the meaning assigned thereto in the
Side Letter.

     "Purchased  Assets"  means,  with  respect to a  Transaction,  the Eligible
Assets  which are the  subject of such  Transaction,  together  with the related
Records and other  Collateral,  and all instruments,  chattel paper, and general
intangibles comprising or relating to all of the foregoing.

     "Rating Agency" means each of Moody's Investors Service,  Inc.,  Standard &
Poor's, a division of The McGraw Hill Companies, Inc. or Fitch Ratings.

     "Records" means all instruments,  agreements and other books,  records, and
reports  and data  generated  by other  media  for the  storage  of  information
maintained by the related Seller or any other person or entity with respect to a
Purchased  Asset.  Records  shall include the  certificates  with respect to any
Purchased  Asset and any other  instruments  necessary  to document or service a
Purchased Asset.

     "Reference  Banks" mean any leading  banks  selected by the Agent which are
engaged in transactions in Eurodollar deposits in the international Eurocurrency
market with an established place of business in London.


                                       8








     "REIT" shall mean a real estate investment trust, as defined in Section 856
of the Code.

     "Relevant System" shall mean, (i) The Depository Trust Company in New York,
New York, or (ii) such other clearing  organization  or book-entry  system as is
designated in writing by Buyer.

     "REMIC"  means a "real  estate  mortgage  investment  conduit"  within  the
meaning of Section 860D of the Code.

     "Repayment Fee" shall have the meaning assigned thereto in the Side Letter.

     "Repurchase  Date" shall have the meaning  assigned thereto in Section 3(b)
and shall also include the date determined by application of Section 19.

     "Repurchase  Price"  means the price at which  Purchased  Assets  are to be
transferred  from Buyer to the  related  Seller upon the  Repurchase  Date for a
Transaction,  which  will be  determined  in each case  (including  Transactions
terminable  upon  demand)  as the  sum of  the  Purchase  Price  and  the  Price
Differential as of the date of such determination.

     "Required  Equity"  shall mean,  with respect to NFI (and its  consolidated
Subsidiaries)  (together,  the  "Companies"),  the  sum  of the  dollar  amounts
calculated  after  multiplying  the amount  determined by combining the relevant
figures for NFI and its consolidated Subsidiaries for each asset class set forth
in the table  below (or if such  asset  class is owned by NFI or a  consolidated
Subsidiary  but cannot be determined  by combining the relevant  figures for NFI
and its consolidated  Subsidiaries,  the fair market value thereof as calculated
by the Companies  subject,  however,  to the approval of Buyer which will not be
unreasonably  withheld) by the  Percentage  Multipliers  set forth opposite such
asset class in the table below:

    ----------------------------------------------------------------------------
                                                                     Percentage
     Asset Class                                                     Multiplier
    ----------------------------------------------------------------------------
     Cash                                                                    0%
    ----------------------------------------------------------------------------
     Mortgage Loans held-for-sale including accrued interest                 5%
    ----------------------------------------------------------------------------
     Mortgage loans held-in-portfolio including accrued interest             5%
     (securitized in an owners trust)
    ----------------------------------------------------------------------------
     Mortgage loans held-in-portfolio including accrued interest          1.75%
     (securitized in a REMIC trust)
    ----------------------------------------------------------------------------
     AAA-Rated I/O and Prepay (P) Certificates booked on-B/S                25%
    ----------------------------------------------------------------------------
     BBB NIM Certificates                                                   25%
    ----------------------------------------------------------------------------
     Residuals from whole loan securitizations                              35%
    ----------------------------------------------------------------------------
     Residuals from NIM/CAPS                                               100%
    ----------------------------------------------------------------------------
     Non-rated subordinate bonds (excluding residuals)                     100%
    ----------------------------------------------------------------------------


                                       9







    ----------------------------------------------------------------------------
                                                                     Percentage
     Asset Class                                                     Multiplier
    ----------------------------------------------------------------------------
     A-Rated Mortgage-Backed Securities not in CDO                          20%
    ----------------------------------------------------------------------------
     BBB-Rated Mortgage-Backed Securities not in CDO                        25%
    ----------------------------------------------------------------------------
     BB-Rate Mortgage-Backed Securities not in CDO                          50%
     ----------------------------------------------------------------------------
     Mortgage-Backed Securities in CDO                                       5%
    ----------------------------------------------------------------------------
     CDO Equity Sub Notes                                                  100%
    ----------------------------------------------------------------------------
     CDO BBB Bonds                                                           5%
    ----------------------------------------------------------------------------
     Agency Securities                                                       3%
    ----------------------------------------------------------------------------
     Servicing Agreements (Mortgage Servicing Rights)                       35%
    ----------------------------------------------------------------------------
     Servicing Advances                                                     15%
    ----------------------------------------------------------------------------
     REO + Non-performing (90+ & foreclosures from bond collateral          35%
     calls)
    ----------------------------------------------------------------------------
     Other assets

       -  Hedging Agreements (Value of reserves that are not reflected     100%
          in Marks to Market that impact equity)

       -  All Other Assets (all else remaining - including Other            35%
          Receivables & PP&E)
    ----------------------------------------------------------------------------
     Intangible Assets                                                     100%
    ----------------------------------------------------------------------------

     provided  that  the  Required  Equity  shall  be  reduced  by any  Dividend
Securities  with a maturity date of more than one year issued in connection with
the 2006 Dividend.

     "Residual  Security" shall mean a non-rated  mortgage-backed  security that
receives  cash  flows   consisting  of  excess   interest,   and/or  release  of
over-collateralization  or  reserve  funds,  or any  other  type  of  cash  flow
including  mortgage  principal  and interest  payments,  prepayment  charges and
liquidiation proceeds.

     "SEC" shall mean the Securities and Exchange Commission.

     "Servicer"  shall  mean  the  designated   servicer  under  each  Servicing
Agreement.

     "Servicing  Agreement" shall mean any servicing agreement pursuant to which
any Mortgage Assets are serviced.

     "Side  Letter"  means the Pricing  Side  Letter,  dated as of May 31, 2007,
among the Sellers, Guarantors and Buyer.

     "Structuring  Fee"  shall  have the  meaning  assigned  thereto in the Side
Letter.


                                       10








     "Subsidiary"   means,   with  respect  to  any  Person,   any  corporation,
partnership  or other entity of which at least a majority of the  securities  or
other ownership  interests  having by the terms thereof ordinary voting power to
elect a majority of the board of directors or other persons  performing  similar
functions of such  corporation,  partnership  or other entity  (irrespective  of
whether or not at the time securities or other ownership  interests of any other
class or classes of such corporation,  partnership or other entity shall have or
might have voting power by reason of the happening of any contingency) is at the
time  directly or  indirectly  owned or controlled by such Person or one or more
Subsidiaries  of such Person or by such Person and one or more  Subsidiaries  of
such  Person;  provided,  however,  that for  purposes  of  Section  18  hereof,
"Subsidiary"  shall not include any of the entities  listed on Exhibit D hereto,
which may be revised by Sellers from time to time upon consent of Buyer.

     "Substitute Assets" has the meaning assigned thereto in Section 16(a).

     "Termination Date" has the meaning assigned thereto in Section 27.

     "Total   Liabilities"   shall  mean  total   liabilities  of  NFI  and  its
consolidated  Subsidiaries  determined  in  accordance  with  GAAP (or with such
non-GAAP  principles  as may be  disclosed to and approved by Buyer from time to
time); provided that for purposes of this Agreement, such term shall not include
any Trust Preferred Securities.

     "Transaction" has the meaning assigned thereto in Section 1.

     "Transaction Notice" means a written request of the related Seller to enter
into a Transaction,  in the form attached hereto as Exhibit B which is delivered
to Buyer.

     "Trust Agreement" shall mean each of the trust agreements pursuant to which
an Asset-Backed Security has been issued.

     "Trust  Preferred  Securities"  shall mean (i) the $50,000,000 of unsecured
floating rate securities  issued by NovaStar  Capital Trust I, a statutory trust
100 percent  owned by NMI,  pursuant  to the  indenture  dated  March 15,  2005,
between NMI and JP Morgan Chase Bank, NA, as trustee and (ii) the $35,000,000 of
unsecured  floating  rate  securities  issued by  NovaStar  Capital  Trust II, a
statutory trust 100 percent owned by NMI,  pursuant to the indenture dated April
18, 2006, between NMI and JP Morgan Chase Bank, NA, as trustee.

     "Trustee" shall mean, as applicable, the entity designated as such pursuant
to each Trust Agreement.

     "Trustee  Instruction Letter" shall mean a letter substantially in the form
of Exhibit E.

     "Uniform Commercial Code" means the Uniform Commercial Code as in effect on
the date  hereof in the State of New York or the Uniform  Commercial  Code as in
effect in the applicable jurisdiction.

     b.   Interpretation.


                                       11








     Headings are for  convenience  only and do not affect  interpretation.  The
following  rules of this  subsection  (b)  apply  unless  the  context  requires
otherwise.  The singular  includes the plural and conversely.  A gender includes
all genders. Where a word or phrase is defined, its other grammatical forms have
a corresponding meaning. A reference to a subsection,  Section, Annex or Exhibit
is, unless otherwise specified, a reference to a Section of, or annex or exhibit
to,  this  Agreement.  A  reference  to a party  to this  Agreement  or  another
agreement or document includes the party's successors and permitted  substitutes
or assigns.  A reference  to an  agreement  or document is to the  agreement  or
document as amended, modified, novated,  supplemented or replaced, except to the
extent  prohibited by any Program  Document.  A reference to legislation or to a
provision  of  legislation  includes a  modification  or  re-enactment  of it, a
legislative   provision  substituted  for  it  and  a  regulation  or  statutory
instrument  issued  under  it. A  reference  to  writing  includes  a  facsimile
transmission  and any means of reproducing  words in a tangible and  permanently
visible form. A reference to conduct includes,  without limitation, an omission,
statement  or  undertaking,  whether  or not in  writing.  An Event  of  Default
subsists  until it has been  waived in writing  by the Buyer or has been  timely
cured. The words "hereof", "herein", "hereunder" and similar words refer to this
Agreement as a whole and not to any particular provision of this Agreement.  The
term  "including" is not limiting and means "including  without  limitation." In
the  computation of periods of time from a specified  date to a later  specified
date,  the word "from"  means "from and  including",  the words "to" and "until"
each mean "to but  excluding",  and the word "through" means "to and including."
This Agreement may use several different  limitations,  tests or measurements to
regulate  the  same  or  similar  matters.  All  such  limitations,   tests  and
measurements are cumulative and shall each be performed in accordance with their
terms.  Unless the context otherwise clearly requires,  all accounting terms not
expressly  defined  herein shall be construed,  and all  financial  computations
required  under  this  Agreement   shall  be  made,  in  accordance  with  GAAP,
consistently  applied.  References  herein to "fiscal year" and "fiscal quarter"
refer to such  fiscal  periods of the related  Seller.  Except  where  otherwise
provided in this  Agreement any  determination,  statement or certificate by the
Buyer or an authorized  officer of the Buyer  provided for in this  Agreement is
conclusive  and binds the parties in the absence of manifest  error. A reference
to an agreement  includes a security interest,  guarantee,  agreement or legally
enforceable  arrangement  whether or not in writing.  A reference  to a document
includes  an  agreement  (as so defined)  in writing or a  certificate,  notice,
instrument or document, or any information recorded in computer disk form. Where
the  related  Seller or a Guarantor  is required to provide any  document to the
Buyer under the terms of this Agreement, the relevant document shall be provided
in writing or printed form unless the Buyer requests  otherwise.  At the request
of the Buyer,  the  document  shall be provided  in  computer  disk form or both
printed and computer  disk form.  This  Agreement is the result of  negotiations
among and has been reviewed by counsel to the Buyer, Guarantors and the Sellers,
and is the product of all parties.  In the interpretation of this Agreement,  no
rule of construction  shall apply to  disadvantage  one party on the ground that
such  party  proposed  or was  involved  in the  preparation  of any  particular
provision of this Agreement or this  Agreement  itself.  Except where  otherwise
expressly  stated,  the  Buyer  may  give or  withhold,  or give  conditionally,
approvals and consents,  and may form opinions and make  determinations at their
absolute  discretion.  Any requirement of good faith,  discretion or judgment by
the Buyer shall not be construed to require Buyer to request or await receipt of
information or documentation  not immediately  available from or with respect to
the related Seller, a Guarantor,  a servicer of the Purchased Assets,  any other
Person or the Purchased Assets  themselves.  With respect to any information set
forth on Schedules 1, 2 and 3 attached hereto,  Buyer has reviewed and consented
to such  information  on such  schedules  as of the


                                       12








Effective Date; provided, however, that to the extent any facts or circumstances
relating to the matters  disclosed on such schedules  change after the Effective
Date,  Buyer shall not be deemed to have  consented  to any such change and such
change may result in an Event of Default.

3.   THE TRANSACTIONS

     a. The related Seller shall  repurchase all Purchased  Assets from Buyer on
each related  Repurchase  Date. Each obligation to repurchase  subsists  without
regard to any prior or intervening  liquidation  or foreclosure  with respect to
each  Purchased  Asset.  The related Seller is obligated to obtain the Purchased
Assets from Buyer or its designee at the related  Seller's expense on (or after)
the related Repurchase Date.

     b.  Provided that the  applicable  conditions in Sections 9(a) and (b) have
been  satisfied,  each Purchased Asset that is repurchased by the related Seller
on the 26th day of each month (or, if such 26th day is not a Business  Day,  the
immediately  following Business Day) following the related initial Purchase Date
(the day of the month so determined for each month, or any other date designated
by the related  Seller to Buyer for such a  repurchase  on at least one Business
Day's prior notice to Buyer, a "Repurchase  Date", which term shall also include
the date  determined by  application of Section 19) shall  automatically  become
subject to a new  Transaction  unless Buyer is notified by the related Seller at
least one (1) Business Day prior to any  Repurchase  Date,  provided that if the
Repurchase Date so determined is later than the Termination Date, the Repurchase
Date for such Transaction shall automatically reset to the Termination Date, and
the  provisions of this sentence as it might relate to a new  Transaction  shall
expire on such date for each new Transaction,  unless otherwise agreed,  (y) the
accrued and unpaid Price  Differential  shall be settled in cash on each related
Repurchase  Date,  and (z) the  Pricing  Rate  shall be as set forth in the Side
Letter.

     c. If the related Seller  repurchases  Purchased Assets on any day which is
not a  Repurchase  Date for such  Purchased  Assets,  the related  Seller  shall
indemnify  Buyer and hold Buyer harmless from any losses,  costs and/or expenses
which Buyer may sustain or incur arising from the reemployment of funds obtained
by Buyer  hereunder or from fees payable to  terminate  the deposits  from which
such funds were obtained  ("Breakage  Costs"), in each case for the remainder of
the  applicable  30 day  period.  Buyer shall  deliver to the  related  Seller a
statement  setting forth the amount and basis of  determination  of any Breakage
Costs in such detail as  determined  in good faith by Buyer to be  adequate,  it
being  agreed that such  statement  and the method of its  calculation  shall be
adequate and shall be  conclusive  and binding upon the related  Seller,  absent
manifest error. This Section shall survive termination of this Agreement and the
repurchase of all Purchased Assets subject to Transactions hereunder.

4.   ENTERING INTO TRANSACTIONS, TRANSACTION NOTICE CONFIRMATIONS

     Under the terms and  conditions  of the  Program  Documents,  Buyer  hereby
agrees  to enter  into  Transactions  with a  Purchase  Price up to the  Maximum
Aggregate  Purchase Price;  provided,  however,  that in no event shall Buyer be
obligated to enter into more than four (4)  Transactions  per month or more than
one (1)  Transaction in any day.  Unless  otherwise  agreed,  the related Seller
shall give Buyer  notice of any  proposed  Purchase  Date prior to 2:00 p.m. New
York City time on the second (2nd) Business Day preceding the date on which such
notice is so given,  the "Notice  Date",  provided that the initial  Transaction
shall only require one (1) Business Day prior  notice.  On the


                                       13








Notice Date,  the related  Seller or a Guarantor  shall request that Buyer enter
into a Transaction by furnishing to Buyer a Transaction  Notice.  On such Notice
Date, the related Seller shall (I) with respect to Eligible Assets that shall be
delivered  or held in  definitive,  certificated  form,  deliver  to  Buyer  the
original of the relevant certificate with respect to the related Eligible Assets
either (i) registered in the name of Buyer or (ii) if Buyer consents  thereto in
its sole  discretion,  in form suitable for transfer,  with  accompanying,  duly
executed (with a medallion  guarantee  with respect to the  signatures  thereon)
instruments of transfer or appropriate  instruments of assignment (including all
Transfer  Documents)  executed  in blank,  transfer  tax  stamps,  and any other
documents or instruments necessary in the opinion of Buyer to effect and perfect
a legally valid  delivery of such security or other item of investment  property
to Buyer,  (II) with respect to Eligible  Assets that shall be delivered or held
in  uncertificated  form  and the  ownership  of which  is  registered  on books
maintained by the issuer thereof or its transfer  agent,  the Seller shall cause
the  registration  of such security or other item of investment  property in the
name of Buyer and at the request of the Buyer, shall take such other and further
steps, and shall execute and deliver such documents or instruments  necessary in
the opinion of the Buyer,  to effect and perfect a legally valid delivery of the
relevant  interest  granted therein to Buyer hereunder and (III) with respect to
Eligible Assets that shall be delivered  through a Relevant System in book entry
form and credited to or otherwise held in an account, (i) the Seller shall cause
the giving of written  instructions  to the relevant  financial  institution  or
other  entity,  and shall  provide a copy  thereof to the Buyer,  sufficient  if
complied  with to effect and perfect a legally  valid  delivery of the  relevant
interest granted therein to Buyer hereunder, (ii) in connection with any account
to which the Eligible  Assets are credited or otherwise  held,  the Seller shall
execute and deliver such other and further  documents or instruments  necessary,
to effect and perfect a legally valid delivery of the relevant  interest granted
therein to Buyer  hereunder  and (iii) any account to which the Eligible  Assets
are  credited or  otherwise  shall be  designated  as Buyer may  direct.  Unless
otherwise  instructed  by Buyer,  any  delivery  of a security  or other item of
investment  property in definitive,  certificated form shall be made to Buyer in
accordance with its instructions.  Any delivery of a security in accordance with
this subsection, or any other method acceptable to Buyer in its sole discretion,
shall be sufficient to cause Buyer to have a perfected,  first priority security
interest  in,  and  to be  the  "entitlement  holder"  (as  defined  in  Section
8-102(a)(7)  of the  Uniform  Commercial  Code of the  State of New  York)  with
respect to the security.  No Purchased  Assets shall,  whether  certificated  or
uncertificated,  (i) remain in the  possession of the Seller,  or (ii) remain in
the name of the Seller or any of its  agents,  or in any  account in the name of
the Seller or any of its agents.  In the event Buyer consents to delivery of any
certificate  representing  one or more of Eligible  Assets not registered in the
name of Buyer, concurrently with the delivery thereof, (A) the Seller shall have
(1)  notified  the  Trustee  in  connection  with  the  related   securitization
transaction  of the pledge of the related  Eligible  Assets  hereunder,  and (2)
instructed the Trustee to pay all amounts payable to the holders of the Eligible
Assets to an  account  specified  by the Buyer,  in the form of the  instruction
letter attached hereto as Exhibit E (the "Trustee  Instruction  Letter") and (B)
the Trustee shall have  acknowledged  in writing the  instructions  set forth in
clause (A) above,  and a copy of the fully executed Trustee  Instruction  Letter
shall be delivered to the Buyer.  Buyer shall  exercise all voting and corporate
rights relating to such Purchased  Assets in accordance with Seller's  direction
for so long as no  Default  or Event  of  Default  shall  have  occurred  and be
continuing;  provided,  however,  that no vote shall be cast or corporate  right
exercised  or other  action  taken  which would  impair,  reduce the value of or
otherwise  adversely  affect the Purchased Assets or which would be inconsistent
with or result in any  violation of any provision of this  Agreement,  any other
Program  Document or the  Guaranty.  Sellers  hereby  agree to pay all costs and
expenses  incurred  by any  party  (including  reasonable  attorney's  fees  and
expenses) in connection with any such  registration in the


                                       14








name of  Buyer  and any  ultimate  re-registration  in the name of  Sellers,  if
applicable. Without the prior written consent of Buyer, no Seller will (i) sell,
assign,  transfer,  exchange or  otherwise  dispose of, or grant any option with
respect to, the Purchased Assets,  or (ii) create,  incur or permit to exist any
Lien or option in favor of, or any claim of any Person  with  respect to, any of
the Purchased Assets, or any interest therein,  except for the lien provided for
by this Agreement,  or (iii) enter into any agreement or undertaking (other than
pursuant to this  Agreement)  restricting  the right or ability of the Seller or
Buyer to sell, assign or transfer any of the Purchased Assets.

5.   PAYMENT AND TRANSFER

     Unless  otherwise  agreed,  all  transfers of funds  hereunder  shall be in
immediately  available  funds  and all  Purchased  Assets  transferred  shall be
transferred to Buyer. Any Repurchase Price or Price  Differential  received by a
Buyer  after  12:00  noon New  York  City  time  shall  be  applied  on the next
succeeding Business Day.

6.   MARGIN MAINTENANCE

     a. If at any time  the  aggregate  Market  Value  of all  Purchased  Assets
subject to all Transactions is less than the aggregate Buyer's Margin Amount for
all such  Transactions  (a  "Margin  Deficit"),  then Buyer may by notice to the
related Seller require the related  Seller in such  Transactions  to transfer to
Buyer cash so that the cash and aggregate  Market Value of the Purchased  Assets
will  thereupon  equal or exceed such  aggregate  Buyer's  Margin  Amount  (such
requirement,  a "Margin Call"). If a Seller fails to satisfy a Margin Deficit in
accordance  with this  Section  6(a),  then Buyer may,  in its sole  discretion,
immediately  satisfy a Margin  Deficit,  by netting the purchase price under any
Existing Agreement by the amount of such Margin Deficit.  Upon such netting, the
purchase price under such Existing  Agreement shall be increased on a dollar for
dollar  basis by the amount of such  Margin  Deficit  regardless  of whether the
maximum  aggregate  purchase  price  had  already  been  reached  under any such
Existing Agreement.

     b.  Notice  required  pursuant  to  Section  6(a) may be given by any means
provided in Section 35 hereof.  Any notice  received  before 11:00 a.m. New York
time on a Business Day shall be met, and the related Margin Call  satisfied,  no
later than 5:00 p.m. New York time on such Business Day;  notice  received after
11:00 a.m. New York time on a Business Day shall be met, and the related  Margin
Call satisfied,  no later than 5:00 p.m. New York time on the following Business
Day. The failure of Buyer, on any one or more occasions,  to exercise its rights
hereunder,  shall not  change or alter the terms and  conditions  to which  this
Agreement  is subject or limit the right of Buyer to do so at a later date.  The
related  Seller,  each Guarantor and Buyer each agree that a failure or delay by
Buyer to exercise its rights  hereunder  shall not limit or waive Buyer's rights
under  this  Agreement  or  otherwise  existing  by  law or in  any  way  create
additional rights for the related Seller or any Guarantor.

     c. If the  Sellers  fail to  satisfy a Margin  Deficit in  accordance  with
Section 6(a) and Section 6(b)  hereof,  then Buyer may, in its sole  discretion,
satisfy a Margin  Deficit,  by netting the  purchase  price  under any  Existing
Agreement by the amount of such Margin Deficit.  Upon such netting, the purchase
price under such  Existing  Agreement  shall be increased on a dollar for dollar
basis by the amount of such  Margin  Deficit  regardless  of whether the maximum
aggregate  purchase  price had  already  been  reached  under any such  Existing
Agreement.


                                       15








7.   INCOME PAYMENTS

     Where a  particular  term of a  Transaction  extends over the date on which
Income is paid in respect of any Purchased  Assets subject to that  Transaction,
such  Income  shall be paid  directly  to Buyer  and be the  property  of Buyer;
provided,  however, that all such Income shall be applied by Buyer to reduce the
Obligations of Sellers hereunder.

8.   SECURITY INTEREST

     The related  Seller and Buyer  intend that the  Transactions  hereunder  be
sales to Buyer of the  Purchased  Assets and not loans from Buyer to the related
Seller secured by the Purchased  Assets.  However,  in order to preserve Buyer's
rights  under  this  Agreement  in  the  event  that  a  court  or  other  forum
recharacterizes the Transactions  hereunder as other than sales, and as security
for the related  Seller's  performance  of all of its  Obligations,  the related
Seller hereby grants Buyer a fully perfected first priority security interest in
the  following  property,  whether  now  existing  or  hereafter  acquired:  the
Purchased  Assets,  the  related  Records,  the  contractual  right  to  receive
payments,  including  the right to payments of  principal  and  interest and the
right to  enforce  such  payments  arising  from or under  any of the  Purchased
Assets,  the  contractual  right to service or arrange for the servicing of each
Mortgage Asset to the extent,  if any, the related  Seller has such rights,  any
servicing  agreements with respect to each Mortgage Asset,  including the rights
of the related Seller, if any, under any Servicing Agreements to the extent such
rights under the Servicing  Agreements are assignable by the related Seller, and
any  proceeds  and   distributions   with  respect  to  any  of  the   foregoing
(collectively the "Collateral").

9.   CONDITIONS PRECEDENT

     a. As  conditions  precedent to the initial  Transaction,  Buyer shall have
received on or before the day of such initial Transaction the following, in form
and substance satisfactory to Buyer and duly executed by each party thereto:

          (i)  Agent  shall  have  received  the  Program  Documents,  including
     collateral documents,  required legal opinions and certificates,  each duly
     executed and in form and substance reasonably satisfactory to the Agent;

          (ii) Agent shall be satisfied that all material Liens granted to Buyer
     hereunder with respect to the Collateral are valid and perfected  liens and
     have the priorities indicated herein;

          (iii) Except as disclosed on Schedule 2 attached hereto,  there are no
     actions,   suits,   arbitrations,    investigations   (including,   without
     limitation,  any of the foregoing which are pending or threatened) or other
     legal  or  arbitrable   proceedings  affecting  Sellers  or  any  of  their
     Subsidiaries  or  affecting  any of the  Property of any of them before any
     Governmental  Authority  which (i) questions or challenges  the validity or
     enforceability of the Program Documents or otherwise materially impairs the
     transactions  contemplated  hereby or (ii) individually or in the aggregate
     could reasonably be expected to have a Material Adverse Effect.


                                       16








          (iv) The Program Documents shall be duly executed and delivered by the
     parties  thereto  and  being  in  full  force  and  effect,   free  of  any
     modification, breach or waiver;

          (v) Except as  disclosed  on Schedule 3 attached  hereto,  there shall
     have  been  no  Material   Adverse   Change  in  the  business,   financial
     performance,  assets,  operations or condition  (financial or otherwise) of
     Sellers and their subsidiaries, taken as a whole since March 31, 2007;

          (vi) The Sellers  shall have  delivered to the Agent and the Buyer (i)
     an unaudited consolidated balance sheet of NFI dated not earlier than March
     31, 2007 prior to the date hereof  showing  Adjusted  Tangible Net Worth of
     not less than  $517,000,000  (which  may or may not have been  prepared  in
     accordance with GAAP) and (ii) an unaudited  summary  schedule of estimated
     consolidated  financial  results of NFI and its  subsidiaries for the three
     months  ended March 31,  2007  (which may or may not have been  prepared in
     accordance with GAAP);

          (vii)  There  shall not exist any  violation  of  applicable  laws and
     regulations (including,  without limitation,  ERISA, margin regulations and
     environmental  laws)  which  could  reasonably  be  expected to result in a
     Material Adverse Change, except as disclosed on Schedule 3 attached hereto;

          (viii) The  representations  and warranties  contained herein shall be
     true and correct in all material respects as of the date hereof;

          (ix) No event shall have  occurred and be  continuing  or would result
     from any Existing  Agreement that would constitute an Event of Default or a
     Default;

          (x) Agent shall have  received a certified  copy of each  Seller's and
     each  Guarantor's  consents  or  corporate   resolutions,   as  applicable,
     approving  the  Program  Documents  and  Transactions   thereunder  (either
     specifically or by general resolution),  and all documents evidencing other
     necessary corporate action or governmental  approvals as may be required in
     connection with the Program Documents;

          (xi) Agent  shall  have  received  an  incumbency  certificate  of the
     secretaries  of each Seller and each Guarantor  certifying the names,  true
     signatures and titles of each Seller's and each Guarantor's representatives
     duly  authorized  to request  Transactions  hereunder  and to  execute  the
     Program Documents and the other documents to be delivered thereunder;

          (xii) Agent shall have  received an opinion of each  Seller's and each
     Guarantor's  counsel as to such matters (including,  without limitation,  a
     corporate  opinion,  a New  York law  enforceability  opinion,  a  security
     interest  opinion,  an  investment  company act  opinion and a  "securities
     contract"  under federal  bankruptcy  law opinion) as Buyer may  reasonably
     request and in form and substance acceptable to Buyer;

          (xiii) All of the conditions precedent in the Guaranty shall have been
     satisfied; and


                                       17








          (xiv) Any other documents reasonably requested by Buyer.

     b. The  obligation of Buyer to enter into each  Transaction  (including the
initial  Transaction)  pursuant to this  Agreement  is subject to the  following
conditions precedent:

          (i) Buyer or its designee  shall have received on or before the day of
     a  Transaction  with respect to such  Purchased  Assets  (unless  otherwise
     specified  in  this  Agreement)  the  following,   in  form  and  substance
     satisfactory to Buyer and (if applicable) duly executed:

          (A)  Transaction Notice delivered pursuant to Section 4(a);

          (B)  the  definitive   certificate   representing  ownership  of  such
               Purchased Assets that are subject to such Transaction in the name
               of Buyer or, if such  Purchased  Assets  that are subject to such
               Transaction are registered on DTC or similar depository, evidence
               satisfactory  to Buyer that the records of DTC or such depository
               show Buyer as the beneficial  ownership of such Purchased  Assets
               that are subject to such Transaction;

          (C)  each Governing  Agreement  with respect to each Purchased  Asset;
               and

          (D)  such  certificates,   customary  opinions  of  counsel  or  other
               documents as Buyer may  reasonably  request,  provided  that such
               opinions of counsel shall not be required in connection with each
               Transaction  but  shall  only be  required  from  time to time as
               deemed necessary by Buyer in its good faith.

          (ii) No  Default  or Event  of  Default  shall  have  occurred  and be
     continuing.

          (iii) Buyer shall not have reasonably  determined that a change in any
     requirement  of law  or in  the  interpretation  or  administration  of any
     requirement  of law  applicable  to  Buyer  has  made it  unlawful,  and no
     Governmental  Authority shall have asserted that it is unlawful,  for Buyer
     to enter  into  Transactions  with a Pricing  Rate  based on LIBOR,  unless
     Seller shall have elected pursuant to Section 15(a) hereof that the Pricing
     Rate for all Transactions be based upon the Prime Rate.

          (iv) All representations and warranties in the Program Documents shall
     be  true  and  correct  in all  material  respects  on  the  date  of  such
     Transaction and Sellers and Guarantors are in compliance with the terms and
     conditions of the Program Documents.

          (v) The then  aggregate  outstanding  Purchase Price for all Purchased
     Assets,  when added to the Purchase  Price for the  requested  Transaction,
     shall not exceed the Maximum Aggregate Purchase Price.

          (vi) No event or events shall have been reasonably determined by Buyer
     to have occurred and be continuing  resulting in the effective absence of a
     whole loan or asset-backed securities market.


                                       18








          (vii) If requested, Buyer shall have received satisfactory information
     regarding  the hedging  strategy,  arrangements  and general  policy of the
     Guarantors with respect to hedge instruments.

          (viii)  Satisfaction  of  any  conditions  precedent  to  the  initial
     Transaction  as set  forth in  clause  (a) of this  Section 9 that were not
     satisfied prior to such initial Purchase Date.

          (ix) The Purchase  Price for the  requested  Transaction  shall not be
     less than $1,000,000, or an integral multiple of $500,000 thereafter.

          (x) Agent shall have determined that all actions  necessary or, in the
     opinion of Buyer,  desirable to maintain Buyer's perfected  interest in the
     Purchased Assets and other Collateral have been taken,  including,  without
     limitation,  duly  executed and filed  Uniform  Commercial  Code  financing
     statements on Form UCC-1.

          (xi)  Buyer  shall not be  obligated  to enter into more than four (4)
     Transactions  per month  (excluding any automatic  Transaction  pursuant to
     Section 3(b)) or one (1) Transaction per day.

          (xii) Any other documents reasonably requested by Buyer.

10.  RELEASE OF PURCHASED ASSETS

     Upon  timely  payment  in  full  of the  Repurchase  Price  and  all  other
Obligations  owing with respect to a Purchased  Asset, if no Default or Event of
Default has occurred and is continuing, Buyer shall release such Purchased Asset
unless such release would give rise to or perpetuate a Margin Deficit. Except as
set forth in Sections 6(a) and 16, the related  Seller shall give at least three
(3) Business Days' prior written notice to Buyer if such repurchase  shall occur
on other than a Repurchase Date.

     If such a Margin  Deficit is  applicable,  Buyer  shall  notify the related
Seller of the amount  thereof and the related  Seller may thereupon  satisfy the
Margin Call in the manner specified in Section 6.

11.  RELIANCE

     With respect to any  Transaction,  Buyer may  conclusively  rely upon,  and
shall incur no liability to the related  Seller or the Guarantor in acting upon,
any request or other  communication that Buyer reasonably  believes to have been
given or made by a person  authorized to enter into a Transaction on the related
Seller's or the Guarantor's behalf.

12.  REPRESENTATIONS AND WARRANTIES

     Each Seller and each Guarantor hereby represents and warrants, and shall on
and as of the  Purchase  Date  for any  Transaction  and on and as of each  date
thereafter  through  and  including  the  related  Repurchase  Date be deemed to
represent and warrant, that:


                                       19








          a. Due Organization and Qualification. Each  Seller and each Guarantor
     is duly organized,  validly existing and in good standing under the laws of
     the  jurisdiction  under whose laws it is  organized.  Each Seller and each
     Guarantor is duly  qualified to do  business,  is in good  standing and has
     obtained all  necessary  licenses,  permits,  charters,  registrations  and
     approvals  necessary for the conduct of its business as currently conducted
     and the performance of its obligations under the Program Documents,  except
     to the extent any  failure to be so  qualified  and in good  standing or to
     obtain such a license,  permit, charter,  registration or approval will not
     cause a  Material  Adverse  Effect  or  impair  the  enforceability  of any
     Purchased Asset.

          b.  Power  and  Authority.  Each  Seller  and each  Guarantor  has all
     necessary  power  and  authority  to  conduct  its  business  as  currently
     conducted,  to  execute,  deliver and  perform  its  obligations  under the
     Program Documents and to consummate the Transactions.

          c. Due Authorization.  The execution,  delivery and performance of the
     Program  Documents  by each  Seller  and  each  Guarantor  have  been  duly
     authorized  by all  necessary  action  and do not  require  any  additional
     approvals  or consents  or other  action by or any notice to or filing with
     any Person  other than any that have  heretofore  been  obtained,  given or
     made.

          d. Noncontravention. None of the execution and delivery of the Program
     Documents  by  the  related   Seller  or  the  related   Guarantor  or  the
     consummation of the Transactions and transactions thereunder:

               i)  conflicts  with,  breaches or violates  any  provision of any
          Seller's charter documents, bylaws, operating agreement or any similar
          agreement,  any material  agreement of any Seller or the  Guarantor or
          any law, rule, regulation, order, writ, judgment,  injunction, decree,
          determination or award currently in effect having applicability to the
          related Seller or the related  Guarantor or its properties,  except as
          would not have a Material Adverse Effect;

               ii)  constitutes a default by the related Seller or the Guarantor
          under any loan or repurchase agreement,  mortgage,  indenture or other
          material  agreement or instrument  to which the related  Seller or the
          related  Guarantor is a party or by which it or any of its  properties
          is or may be bound or affected; or

               iii)  results in or requires  the creation of any lien upon or in
          respect  of any of the  assets of the  related  Seller or the  related
          Guarantor except the lien relating to the Program Documents.

          e.  Legal  Proceeding.  Except as  disclosed  on  Schedule  2 attached
     hereto,  there is no action,  proceeding or  investigation by or before any
     court, governmental or administrative agency or arbitrator affecting any of
     the Purchased Assets, any Seller, any Guarantor or any of their Affiliates,
     pending  or  threatened,   which  is  reasonably  likely  to  be  adversely
     determined and which, if decided  adversely,  would have a Material Adverse
     Effect.


                                       20


          f. Valid and Binding  Obligations.  Each of the Program  Documents  to
     which Sellers or any  Guarantor is a party,  when executed and delivered by
     Sellers or such Guarantor, as applicable,  will constitute the legal, valid
     and  binding  obligations  of the  related  Seller  or such  Guarantor,  as
     applicable,  enforceable  against the related Seller or such Guarantor,  as
     applicable,  in  accordance  with their  respective  terms,  except as such
     enforceability  may be limited by bankruptcy,  insolvency,  reorganization,
     moratorium or other similar laws affecting  creditors' rights generally and
     general equitable principles.

          g.  Financial  Statements.  The  financial  statements  and pro  forma
     balance  sheet of NFI,  copies of which have been  furnished to Buyer,  (i)
     are, as of the dates and for the periods referred to therein,  complete and
     correct  in all  material  respects,  (ii)  present  fairly  the  financial
     condition  and  results  of  operations  of NFI as of the dates and for the
     periods  indicated  and (iii) have been  prepared in  accordance  with GAAP
     consistently  applied,  except  as noted  therein  (subject  as to  interim
     statements  to  normal  year-end  adjustments).  Since the date of the most
     recent financial statements, there has been no Material Adverse Change with
     respect to NFI except as disclosed on Schedule 3 attached hereto. Except as
     disclosed  in such  financial  statements,  no  Guarantor is subject to any
     contingent  liabilities  or  commitments  that,   individually  or  in  the
     aggregate, have a material possibility of causing a Material Adverse Change
     with respect to such  Guarantor.  Buyer hereby  acknowledges  that only the
     annual and quarterly  financial  statements are prepared in accordance with
     GAAP.

          h.  Accuracy of  Information.  None of the  documents  or  information
     prepared  by or on behalf of  Sellers  or any  Guarantor  and  provided  by
     Sellers or any Guarantor to Buyer  relating to Sellers' or the  Guarantor's
     financial  condition  contain any statement of a material fact with respect
     to  Sellers  or any  Guarantor  or the  Transactions  that  was  untrue  or
     misleading  in any  material  respect  when  made.  Since  the most  recent
     furnishing of such documents or information,  there has been no change, nor
     any development or event involving a prospective change known to Sellers or
     any  Guarantor,  that would  render any of such  documents  or  information
     untrue or misleading in any material respect.

          i. No Consents. No consent,  license,  approval or authorization from,
     or  registration,   filing  or  declaration   with,  any  regulatory  body,
     administrative  agency,  or other  governmental,  instrumentality,  nor any
     consent,  approval, waiver or notification of any creditor, lessor or other
     non-governmental  person,  is required in  connection  with the  execution,
     delivery and  performance  by Sellers or any Guarantor of this Agreement or
     the consummation by Sellers or any Guarantor of any other Program Document,
     other than any that have heretofore been obtained, given or made.

          j. Compliance With Law. Etc. No practice, procedure or policy employed
     or proposed to be  employed by Sellers or any  Guarantor  in the conduct of
     its businesses violates any law, regulation,  judgment, agreement, order or
     decree  applicable  to it  which,  if  enforced,  would  result in either a
     Material  Adverse  Change  with  respect to Sellers or any  Guarantor  or a
     Material Adverse Effect.

          k. Solvency:  Fraudulent Conveyance. Each Seller and each Guarantor is
     solvent and will not be rendered  insolvent by the  Transaction  and, after
     giving effect to such  Transaction,  neither Sellers nor any Guarantor will
     be left with an  unreasonably  small


                                       21








     amount of capital with which to engage in its business. Neither Sellers nor
     any Guarantor  intends to incur,  nor believes that it has incurred,  debts
     beyond its ability to pay such debts as they  mature.  Neither  Sellers nor
     any Guarantor is contemplating the commencement of insolvency,  bankruptcy,
     liquidation or consolidation  proceedings or the appointment of a receiver,
     liquidator,  conservator, trustee or similar official in respect of Sellers
     or any Guarantor or any of their assets. The amount of consideration  being
     received  by  Sellers  upon  the  sale of the  Purchased  Assets  to  Buyer
     constitutes  reasonably  equivalent value and fair  consideration  for such
     Purchased  Assets.  Sellers are not  transferring any Purchased Assets with
     any intent to hinder, delay or defraud any of its creditors.

          l.  Investment  Company  Act  Compliance.  No Seller is required to be
     registered  as an  "investment  company"  as defined  under the  Investment
     Company Act nor as an entity under the control of an  "investment  company"
     as defined under the Investment Company Act.

          m.  Taxes.  Each Seller and each  Guarantor  has filed all federal and
     state tax  returns  which  are  required  to be filed  and paid all  taxes,
     including  any  assessments  received  by it, to the extent that such taxes
     have  become due (other  than for taxes  that are being  contested  in good
     faith or for which it has established  adequate reserves).  Any taxes, fees
     and other  governmental  charges payable by the Sellers or any Guarantor in
     connection with a Transaction and the execution and delivery of the Program
     Documents have been paid.

          n. Additional  Representation.  With respect to each Purchased  Asset,
     the related Seller hereby makes all of the applicable  representations  and
     warranties set forth in each  Confirmation to which such Purchased Asset is
     or has been subject,  in each case as of the related Purchase Date, and the
     related Seller understands that if the substance of any such representation
     or warranty ceases to be true because of events  occurring after such date,
     the Market Value could be adversely affected.

          o. No Broker.  Neither any Seller nor any Guarantor has dealt with any
     broker,  investment banker,  agent, or other person,  except for Buyer, who
     may be entitled to any commission or  compensation  in connection  with the
     sale of Purchased  Assets  pursuant to this  Agreement;  provided,  that if
     Sellers or any  Guarantor  has dealt with any  broker,  investment  banker,
     agent,  or other  person,  except for  Buyer,  who may be  entitled  to any
     commission or compensation in connection with the sale of Purchased  Assets
     pursuant to this Agreement, such commission or compensation shall have been
     paid in full by the related Seller or such Guarantor, as applicable.

          p.  Adequate  Capital.  The capital of Sellers and each  Guarantor  is
     adequate for the respective  business and  undertakings of Sellers and each
     Guarantor.

          q. [Reserved].

          r. Governing Agreements. Each Governing Agreement is in full force and
     effect and has not been modified,  amended or  supplemented  except for any
     modifications, amendments and supplements approved by Buyer.


                                       22








          s. Purchased  Assets.  With respect to each Purchased  Asset,  (i) the
     related Seller has sold to Buyer a one hundred  percent (100%)  interest in
     each class of such Purchased Asset; (ii) the related Seller shall be at the
     time it  delivers  any  Purchased  Assets  for any  Transaction,  and shall
     continue  to  be,   through  the  Purchase   Date  relating  to  each  such
     Transaction,  the legal and beneficial  owner of such Purchased Assets free
     and clear of any Lien;  (iii) the Seller has the unqualified  right to sell
     (and to the extent  applicable,  pledge and grant a first priority security
     interest in) the Purchased Assets as provided herein without the consent of
     any other person or entity,  except for such consents which shall have been
     obtained prior to the Purchase Date; and (iv) upon the consummation of each
     Transaction,  Buyer  shall  be the  legal  and  beneficial  owner  of  such
     Purchased Assets free and clear of any lien.

          t. ERISA. Each Plan to which Sellers or any of their Subsidiaries make
     direct  contributions,  and, to the knowledge of the related  Seller,  each
     other Plan is in compliance  in all material  respects  with,  and has been
     administered  in all material  respects in compliance  with, the applicable
     provisions  of ERISA,  the Code and any other  applicable  Federal or State
     law. As of the date hereof and on any date prior to the  Termination  Date,
     no Plan is a "multiemployer plan" (within the meaning of Section 4001(a)(3)
     of ERISA) or a "defined  benefit plan" (within the meaning of Section 3(35)
     of ERISA).

          u. Compliance with Anti-Money Laundering Laws. Within thirty (30) days
     following  the issuance of  regulations  pursuant to the USA Patriot Act of
     2001, or any similar federal, state or local anti-money laundering laws and
     regulations  (collectively,  the "Anti-Money Laundering Laws"), each Seller
     shall have implemented and shall thereafter maintain to the extent required
     by law a compliance  program that meets the requirements of such Anti-Money
     Laundering Laws.

     The  representations  and  warranties  set  forth in this  Agreement  shall
survive transfer of the Purchased Assets to Buyer and shall continue for so long
as the Purchased Assets are subject to this Agreement.

13.  COVENANTS OF SELLERS AND GUARANTOR

     Each Seller and each Guarantor, as applicable,  hereby covenants with Buyer
as follows:

          a. Defense of Title. Each Seller and each Guarantor  warrants and will
     defend  the right,  title and  interest  of Buyer in and to all  Collateral
     against all adverse claims and demands.

          b. No Amendment or Compromise.  Without Buyer's prior written consent,
     neither any Seller,  any  Guarantor nor those acting on any Seller's or any
     Guarantor's  behalf  shall amend or modify,  or waive any term or condition
     of, or settle  or  compromise  any  claim in  respect  of,  any item of the
     Purchased Assets, any related rights or any of the Program Documents.

          c. No Assignment.  Except as permitted herein,  neither any Seller nor
     any  Guarantor  shall sell,  assign,  transfer or otherwise  dispose of, or
     grant any  option  with  respect


                                       23








     to, or pledge,  hypothecate  or grant a security  interest in or lien on or
     otherwise encumber (except pursuant to the Program  Documents),  any of the
     Purchased Assets or any interest therein,  provided that this Section shall
     not prevent any transfer of Purchased Assets in accordance with the Program
     Documents.

          d. Reserved.

          e. Preservation of Collateral;  Collateral Value. Each Seller and each
     Guarantor shall do all things  necessary to preserve the Collateral so that
     it  remains  subject  to  a  first  priority  perfected  security  interest
     hereunder.  Without limiting the foregoing,  each Seller and each Guarantor
     will comply with all rules,  regulations and other laws of any Governmental
     Authority  necessary to preserve the Collateral so that it remains  subject
     to a first priority  perfected  security  interest  hereunder.  Neither any
     Seller nor any Guarantor will allow any default for which any Seller or any
     Guarantor  is  responsible  to occur  under any  Collateral  or any Program
     Documents and each Seller and each  Guarantor  shall fully perform or cause
     to be performed when due all of its obligations under any Collateral or the
     Program Documents.

          f.  Maintenance  of Papers,  Records  and Files.  Each Seller and each
     Guarantor shall require, and each Seller or the Guarantors of the Purchased
     Assets  shall  build,  maintain  and have  available,  a  complete  file in
     accordance  with lending  industry  custom and practice for each  Purchased
     Asset.  Each Seller or the Guarantors of the Purchased Assets will maintain
     all such  Records  not in the  possession  of  Buyer  in good and  complete
     condition in accordance  with industry  practices and preserve them against
     loss.

          i) Each Seller and each Guarantor  shall collect and maintain or cause
     to be collected and maintained all Records relating to the Purchased Assets
     in accordance with industry custom and practice, including those maintained
     pursuant to the  preceding  subsection,  and all such  Records  shall be in
     Buyer's possession unless Buyer otherwise approves.

          ii) For so long as Buyer has an interest  in or lien on any  Purchased
     Asset,  each  Seller and each  Guarantor  will hold or cause to be held all
     related  Records in trust for Buyer.  Each Seller or each  Guarantor  shall
     notify, or cause to be notified, every other party holding any such Records
     of the interests and liens granted hereby.

          iii) Upon reasonable  advance notice from Buyer,  each Seller and each
     Guarantor  shall (x) make any and all such  Records  available  to Buyer to
     examine any such Records,  either by its own officers or  employees,  or by
     agents or  contractors,  or both,  and make  copies  of all or any  portion
     thereof,  (y) permit Buyer or its authorized agents to discuss the affairs,
     finances and accounts of each Seller or such  Guarantor with its respective
     chief  operating  officer  and chief  financial  officer and to discuss the
     affairs,  finances and accounts of each Seller or such  Guarantor  with its
     independent certified public accountants.

          g. Financial Statements: Accountants' Reports: Other Information. Each
     Seller  and each  Guarantor  shall  keep or cause to be kept in  reasonable
     detail  books and records of account of its assets and  business  and shall
     clearly  reflect  therein the transfer of Purchased


                                       24








     Assets to Buyer. Each Seller and NFI shall furnish or cause to be furnished
     to Buyer the following:

               i)  Financial  Statements.  (w) As soon as  available  and in any
          event  within  90  days  after  the  end  of  each  fiscal  year,  the
          consolidated  and  consolidating,  audited balance sheets of NFI as of
          the  end of  each  fiscal  year of  NFI,  and  the  audited  financial
          statements  of income and  changes in equity of NFI,  and the  audited
          statement of cash flows of NFI,  for such fiscal year,  (x) as soon as
          available  and in any  event  within  45  days  after  the end of each
          quarter, the consolidated and consolidating,  unaudited balance sheets
          of NFI as of the end of each  quarter,  and  the  unaudited  financial
          statements  of income and  changes in equity of NFI and the  unaudited
          statement of cash flows of NFI for the portion of the fiscal year then
          ended,  (y)  within  30 days  after  the end of  each  month,  monthly
          consolidated and  consolidating  and unaudited  statements  (excluding
          cash flow  statements)  and balance  sheets as provided in clause (x),
          and (z) within 10 days after the end of each month, NFI's monthly cash
          activity report, the items in clauses (w) and (x) having been prepared
          in accordance with GAAP (subject,  in the case of interim  statements,
          to normal year-end adjustments) and certified by NFI's treasurer.

               ii) Monthly Certification.  Each Seller shall execute and deliver
          a  monthly  certification  substantially  in the form of  Exhibit  A-1
          attached   hereto  and  NFI  shall   execute  and  deliver  a  monthly
          certification substantially in the form of Exhibit A-2 attached hereto
          within thirty (30) days following the end of each month.

               iii) Monthly  Servicing  Reports.  Each Seller  shall  deliver to
          Buyer monthly servicing reports which shall include  information as to
          static pool analyses and Liquidity (as defined herein).

     h. Notice of Material Events. Each Seller and each Guarantor shall promptly
inform Buyer in writing of any of the following:

               i) any  Default,  Event of  Default  or  default or breach by any
          Seller or any  Guarantor of any other  material  obligation  under any
          Program  Document,  or the  occurrence  or  existence  of any event or
          circumstance that any Seller or such Guarantor reasonably expects will
          with the passage of time become a Default,  Event of Default or such a
          default or breach by any Seller or any Guarantor;

               ii) any material change in the insurance coverage required of any
          Seller or any  Guarantor or any other  Person  pursuant to any Program
          Document, with copy of evidence of same attached;

               iii) any material dispute, litigation, investigation,  proceeding
          or suspension  between any Seller or any  Guarantor,  on the one hand,
          and any Governmental Authority or any other Person;

               iv) any  material  change in  accounting  policies  or  financial
          reporting practices of any Seller or any Guarantor;


                                       25








               v)  the  occurrence  of any  material  employment  dispute  and a
          description of the strategy for resolving it; and

               vi) any event,  circumstance  or condition that has resulted,  or
          has a  reasonable  possibility  of  resulting,  in  either a  Material
          Adverse  Change  with  respect  to any  Seller or any  Guarantor  or a
          Material Adverse Effect.

          i. Maintenance of Licenses.  Except as would not be reasonably  likely
     to have a Material Adverse Effect, (i) each Seller and each Guarantor shall
     maintain,  all material licenses,  permits or other approvals necessary for
     each Seller and each  Guarantor  to conduct its business and to perform its
     obligations  under the  Program  Documents,  and (ii) each  Seller and each
     Guarantor shall conduct its business in accordance with applicable law.

          j. No Withholdings  for Taxes. Any payments made by the related Seller
     to Buyer shall be free and clear of, and without  deduction or  withholding
     for,  any taxes;  provided,  however,  that if the related  Seller shall be
     required  by law to deduct or withhold  any taxes from any sums  payable to
     Buyer,   then  the  related  Seller  shall  (A)  make  such  deductions  or
     withholdings  and pay such amounts to the relevant  authority in accordance
     with  applicable law, (B) pay to Buyer the sum that would have been payable
     had such  deduction or  withholding  not been made, and (C) at the time the
     Price  Differential  is  paid,  pay to  Buyer  all  additional  amounts  as
     specified  by Buyer to  preserve  the  after-tax  yield  Buyer  would  have
     received if such tax had not been imposed. This provision does not apply to
     income taxes payable by Buyer on its taxable income.

          k. Change in Nature of Business.  Neither any Seller nor any Guarantor
     shall enter any new  material  lines of  business  except  those  currently
     engaged in as of the date hereof.

          l.  Limitation on  Distributions.  If an Event of Default has occurred
     and is  occurring,  neither  any  Seller  nor any  Guarantor  shall pay any
     dividends  or  distributions  with  respect to any  capital  stock or other
     equity  interests in any Seller or any  Guarantor  (except any dividends or
     distributions  required  by law in order  for such  party to  maintain  its
     status  as a real  estate  investment  trust),  whether  now  or  hereafter
     outstanding,  or make any other  distribution  in respect  thereof,  either
     directly or  indirectly,  whether in cash or property or in  obligations of
     any Seller or any  Guarantor,  except with respect to transfers in the form
     of inter-company loans made in the ordinary course of business.

          m. Merger of Guarantor.  No Guarantor  shall at any time,  directly or
     indirectly, without Buyer's prior consent (i) liquidate or dissolve or (ii)
     form or enter  into any  partnership,  joint  venture,  syndicate  or other
     combination which would have a Material Adverse Effect.

          n.  Insurance.  Each Seller will obtain and  maintain  insurance  with
     responsible  companies  in such  amounts  and  against  such  risks  as are
     customarily  carried by  business  entities  engaged in similar  businesses
     similarly  situated,  and will furnish Buyer on request


                                       26








     full  information  as to all such  insurance,  and provide within (15) days
     after  receipt  of  such  request  the   certificates  or  other  documents
     evidencing renewal of each such policy.

          o. Affiliate  Transactions.  Neither any Seller nor any Guarantor will
     at any time, directly or indirectly,  sell, lease or otherwise transfer any
     material  property or assets to, or otherwise acquire any material property
     or assets from, or otherwise engage in any material  transactions with, any
     of  their  Non-Seller  Affiliates  unless  the  terms  thereof  are no less
     favorable to the related  Seller or such  Guarantor,  as  applicable,  than
     those that could be  obtained at the time of such  transaction  in an arm's
     length transaction with a Person who is not an Affiliate.

          p. Change of Fiscal Year. Neither any Seller nor any Guarantor will at
     any time,  directly  or  indirectly,  except  upon  thirty (30) days' prior
     written notice to Buyer,  change the date on which the related  Seller's or
     such  Guarantor's  fiscal year  begins  from the  related  Seller's or such
     Guarantor's current fiscal year beginning date.

          q. [Reserved].

          r.  Excluded  Subsidiaries.  No  material  change in the nature of the
     business  including  without   limitation,   capitalization  or  change  in
     significant investors shall occur for any Subsidiaries listed on Exhibit D,
     without thirty (30) days prior written notice to the Buyer.

          s.  Facility  Fees.  Buyer  shall be paid the  following  fees by wire
     transfer of  immediately  available  funds  without  deduction,  set-off or
     counterclaim  pursuant to the terms and  conditions set forth herein and in
     the Side Letter:

               i.  Structuring  Fee.  Prior to the Effective  Date,  the Sellers
          shall have paid the Structuring Fee to the Buyer.

               ii.  Repayment Fee. Upon  termination of the Facility on or prior
          to the Termination Date in accordance with Section 27 herein,  Sellers
          shall pay to Buyer an amount equal to (i) the Repurchase  Price,  plus
          (ii) the  Repayment  Fee,  minus (iii) the sum of all Early  Repayment
          Fees, if any.

               iii. Early Repayment Fee. For any asset repurchased by any Seller
          prior to such asset's related  Repurchase  Date, such Seller shall pay
          the applicable Early Repayment Fee to Buyer; provided, that the sum of
          all Early  Repayment  Fees  shall not  exceed  the  Repayment  Fee and
          payments of any Early  Repayment  Fees shall reduce the  Repayment Fee
          owed.

               iv.  Default  Fee.  Upon the  occurrence  of  either  an Event of
          Default or a Default has occurred or is  continuing  the Sellers shall
          pay the Default Fee to Buyer.

               v.  Change in Control  Fee.  Upon the  occurrence  of a Change in
          Control,  Buyer shall have the right, at its option within ninety (90)
          days of such Change in Control,  to


                                       27








          terminate  the Facility and require the Sellers to pay Buyer an amount
          equal to (i) the  Repurchase  Price,  plus (ii) the  Change in Control
          Fee.

          t.  Maintenance  of  Liquidity.  At all times NFI,  on a  consolidated
     basis,  shall maintain Liquidity in an amount of not less than $30,000,000.
     In the event that NFI's  Liquidity  falls below  $45,000,000 at any time or
     NFI's management  believes such event is reasonably  likely,  Sellers shall
     provide notice of such event or likelihood of event to the Agent.

          u. Maintenance of Adjusted  Tangible Net Worth. The Adjusted  Tangible
     Net Worth of NFI at any time shall be greater than  $517,000,000,  provided
     however  that  such  amount  shall be  reduced  by the  amount  of the 2006
     Dividend.

          v. Payment of Dividends.  No Guarantor, Seller or Subsidiary of any of
     the foregoing  shall pay  dividends  (other than  dividends  paid in stock)
     without  the prior  consent  of Buyer,  exclusive  of (i)  dividends  paid,
     directly or indirectly through one or more other Subsidiaries,  to a Seller
     or to a Guarantor,  (ii) subject to the further  provisions  of this clause
     (v), NFI's 2006 Dividend to its  shareholders  and (iii)  dividends paid on
     NFI's 8.90% Series C Cumulative  Redeemable  Preferred  Stock and dividends
     paid on the Trust Preferred  Securities;  provided that after giving effect
     to the payment of the dividends  described in this clause  (iii),  NFI will
     have at least $30,000,000 of Liquidity;  provided that, notwithstanding the
     generality of the  foregoing,  after payment of the above,  NFI shall be in
     compliance with all representations,  warranties and covenants set forth in
     the Existing Agreements.  No dividend other than the 2006 Dividend,  to the
     extent  permitted  by this  clause (v),  shall be paid in cash  without the
     prior consent of Buyer.

          As of the date hereof,  NFI's best  estimate of the maximum  amount of
     the 2006 Dividend is $175,000,000.

          Buyer  acknowledges  that the 2006  Dividend must be paid in order for
     NFI to continue to maintain  its status as a REIT,  and that such  dividend
     may be paid in cash or Dividend Securities. Buyer further acknowledges that
     U.S.  income tax laws  require that any  Dividend  Securities  be valued at
     their fair  market  value at the time of  issuance  (which,  in the case of
     debt-like  securities,  may be less  than  the  face  amount  thereof)  for
     purposes of determining compliance with the REIT distribution test.

          Unless Buyer  otherwise  consents,  the 2006 Dividend shall be paid in
     the  form  of  Dividend   Securities,   provided  that  if,  in  the  joint
     determination  of NFI and Buyer,  either  excess cash is available or it is
     financially  impractical for NFI to satisfy the requirement to pay the 2006
     Dividend entirely by means of Dividend Securities, then all or a portion of
     the 2006 Dividend may be paid in cash, provided further that (i) Buyer will
     permit  all or a  portion  of the  2006  Dividend  to be paid  in cash  if,
     following  payment in cash of such 2006 Dividend,  NFI's Liquidity shall be
     greater  than  $125,000,000  and (ii) NFI will  neither pay nor declare the
     2006 Dividend  earlier than fifteen (15) days before payment or declaration
     of such dividend is required by applicable law.


                                       28








          NFI may issue Dividend Securities,  provided that, after giving effect
     to such  issuance,  NFI shall be in  compliance  with all  representations,
     warranties and covenants set forth in the Existing Agreements.

          w. Margin Calls.  If at any time after the date hereof  Sellers or any
     of their Affiliates  receive margin calls under any repurchase or financing
     facilities in excess of $5,000,000 in the  aggregate,  Seller shall provide
     notice to Buyer and Buyer shall cause the related  Seller to repurchase the
     assets  subject to such  margin  calls and include  such  assets  under the
     Existing  Agreements  (provided  there is additional  capacity) on mutually
     acceptable terms to Buyer and Sellers.

14.  REPURCHASE DATE PAYMENTS/COLLECTIONS

     On each  Repurchase  Date, the related Seller shall remit or shall cause to
be remitted to Buyer the Repurchase Price.

15.  CHANGE OF LAW

     a. If Buyer  determines  that the  introduction  of,  any change in, or the
interpretation  or administration of any requirement of law has made it unlawful
or commercially  impracticable to engage in any Transactions with a Pricing Rate
based on LIBOR, then the related Seller (i) shall, upon its receipt of notice of
such fact and demand from Buyer,  repurchase the Purchased Assets subject to the
Transaction  on the next  succeeding  Business Day and, at the related  Seller's
election,  concurrently  enter into a new Transaction  with Buyer with a Pricing
Rate based on the Prime  Rate plus the  margin  set forth in the Side  Letter as
part of the Pricing Rate and (ii) may elect, by giving notice to Buyer, that all
new  Transactions  shall have  Pricing  Rates  based on the Prime Rate plus such
margin.

     b. If Buyer  determines  in its sole  discretion  that  any  Change  in Law
regarding capital requirements has or would have the effect of reducing the rate
of return on Buyer's  capital or on the capital of any  Affiliate  of Buyer as a
consequence of such Change in Law on this Agreement,  then from time to time the
related Seller will compensate Buyer or Buyer's  Affiliate,  as applicable,  for
such reduced rate of return  suffered as a consequence  of such Change in Law on
terms  similar  to  those  imposed  by  Buyer on its  other  similarly  affected
customers.  Buyer shall provide the related  Seller with prompt notice as to any
Change in Law.  Notwithstanding  any other provisions in this Agreement,  in the
event of any such  Change  in Law,  the  related  Seller  will have the right to
terminate all Transactions then outstanding without any prepayment penalty as of
a date  selected  by the related  Seller,  which date shall be prior to the then
applicable  Repurchase  Date and which date shall  thereafter  for all  purposes
hereof be deemed to be the Repurchase Date.  Nothing in this Section 15 shall be
deemed to limit Buyer's ability to invoke a Margin Call pursuant to Section 6.

16.  SUBSTITUTION

     a. The related  Seller may,  subject to agreement  with and  acceptance  by
Buyer, substitute other assets which are substantially the same as the Purchased
Assets (the "Substitute  Assets") for any Purchased  Assets.  Such  substitution
shall be made by transfer to Buyer of such other Substitute


                                       29








Assets and  transfer  to the  related  Seller of such  Purchased  Assets.  After
substitution, the Substitute Assets shall be deemed to be Purchased Assets.

     b. In the case of any  Transaction  for which the Repurchase  Date is other
than the Business Day  immediately  following the Purchase Date and with respect
to which the  related  Seller  does not have any  existing  right to  Substitute
Assets  for the  Purchased  Assets,  the  related  Seller  shall have the right,
subject to the  proviso to this  sentence,  upon notice to Buyer,  which  notice
shall  be  given  at or prior to 10 a.m.  (New  York  City  time) on the  second
preceding Business Day, to Substitute Assets for any Purchased Assets; provided,
however,  that Buyer may elect,  by the close of  business on the  Business  Day
following  which such notice is received,  or by the close of the next  Business
Day if notice is given  after 10 a.m.  (New York City time) on such day,  not to
accept such  substitution.  In the event such substitution is accepted by Buyer,
such  substitution  shall be made by the related  Seller's  transfer to Buyer of
such  Substitute  Assets and  Buyer's  transfer  to the  related  Seller of such
Purchased Assets,  and after such  substitution,  the Substitute Assets shall be
deemed to be  Purchased  Assets.  In the event  Buyer  elects not to accept such
substitution,  Buyer shall offer the related  Seller the right to terminate  the
Transaction.

     c. In the event the related  Seller  exercises  its right to  substitute or
terminate under  subsection (b), the related Seller shall be obligated to pay to
Buyer,  by the close of the Business Day of such  substitution,  as the case may
be,  an  amount  equal to (A)  Buyer's  actual  cost in bona  fide  third  party
transactions (including all fees, expenses and commissions) of (i) entering into
replacement transactions;  (ii) entering into or terminating hedge transactions;
and/or  (iii)  terminating  transactions  or  substituting  securities  in  like
transactions  with  third  parties  in  connection  with or as a result  of such
substitution or termination, and (B) to the extent Buyer determines not to enter
into  replacement  transactions,  the Breakage  Costs incurred by Buyer directly
arising or resulting  from such  substitution  or  termination.  Nothing in this
Section  16 shall be deemed to limit  Buyer's  ability  to invoke a Margin  Call
pursuant to Section 6.

17.  REPURCHASE TRANSACTIONS

     Buyer may, in its sole election, engage in repurchase transactions with the
Purchased Assets or otherwise pledge, hypothecate, assign, transfer or otherwise
convey the Purchased  Assets with a  counterparty  of Buyer's  choice,  provided
that, in all cases, such  counterparty  provides Sellers with executed tax forms
claiming a zero tax withholding rate, in all cases subject to Buyer's obligation
to  reconvey  the  Purchased  Assets  (and  not  substitutes  therefor)  on  the
Repurchase Date. In the event Buyer engages in a repurchase transaction with any
of  the  Purchased  Assets  or  otherwise  pledges  or  hypothecates  any of the
Purchased Assets,  Buyer shall have the right to assign to Buyer's  counterparty
any  of  the  applicable  representations  or  warranties  with  respect  to the
Purchased Assets  hereunder and the remedies for breach thereof,  as they relate
to the Purchased Assets that are subject to such repurchase transaction.

18.  EVENTS OF DEFAULT

     With respect to any  Transactions  covered by or related to this Agreement,
the  occurrence  of any of the  following  events shall  constitute an "Event of
Default":


                                       30








     a. any  Seller  fails to  transfer  the  Purchased  Assets  to Buyer on the
applicable  Purchase  Date  (provided  Buyer has tendered  the related  Purchase
Price);

     b. any  Seller  either  fails to  repurchase  the  Purchased  Assets on the
applicable Repurchase Date or fails to perform its obligations under Section 6;

     c.  either any Seller or a  Guarantor  shall  fail to  perform,  observe or
comply with any other  material  term,  covenant or  agreement  contained in the
Program Documents and such failure is not cured within the time period expressly
provided or, if no such cure period is provided, within two (2) Business Days of
the  earlier of (i) such  party's  receipt of written  notice from Buyer of such
breach or (ii) the date on which such party  obtains  notice or knowledge of the
facts giving rise to such breach;

     d. any representation or warranty made by any Seller or a Guarantor (or any
of any Seller's or such Guarantor's officers) in the Program Documents or in any
other document  delivered in connection  therewith  shall have been incorrect or
untrue in any  material  respect  when made or  repeated or to have been made or
repeated  if such  inaccuracy  would  constitute  Material  Adverse  Change with
respect  to  any  Seller  or  Guarantor,  except  for  the  representations  and
warranties  set forth in Section  12(n) and Exhibit C hereof with respect to the
Residual  Securities  and  Collateral,  which  shall be  considered  solely  for
determining  whether such assets constitute Eligible Assets and the Market Value
thereof;

     e. any Seller,  any  Guarantor,  or any of any Seller's or any  Guarantor's
Subsidiaries  shall fail to pay any of any  Seller's,  such  Guarantor's  or any
Seller's or such  Guarantor's  Subsidiaries'  Indebtedness,  or any  interest or
premium thereon when due (whether by scheduled maturity, requirement prepayment,
acceleration,  demand or otherwise),  or shall fail to make any payment when due
under  any  Seller's,  such  Guarantor's  or any  Seller's  or such  Guarantor's
Subsidiaries' Guarantee of another person's Indebtedness for borrowed money, and
such  failure  shall  entitle  any  related  counterparty  to  declare  any such
Indebtedness  or  Guarantee  to be due and  payable,  or  required to be prepaid
(other than by a regularly scheduled required  prepayment),  prior to the stated
maturity thereof provided that such  Indebtedness is in excess of (i) $5,000,000
with  respect  to NFI and (ii)  $1,000,000  with  respect  to all other  parties
referenced in this  subsection  (e) and such failure is not cured within two (2)
Business Days;

     f. a custodian, receiver, conservator, liquidator, trustee, sequestrator or
similar  official  for any  Seller,  a  Guarantor  or any of any  Seller's  or a
Guarantor's  Subsidiaries,  or of any of any Seller's,  a  Guarantor's  or their
respective Property (as a debtor or creditor protection procedure), is appointed
or takes  possession of such property;  or any Seller, a Guarantor or any of any
Seller's or a Guarantor's Subsidiaries generally fails to pay any Seller's, such
Guarantor's  or any  Seller's or such  Guarantor's  Subsidiaries'  debts as they
become due; or any Seller,  a Guarantor or any of any Seller's or a  Guarantor's
Subsidiaries  is  adjudicated  bankrupt or insolvent;  or an order for relief is
entered  under  the  Federal  Bankruptcy  Code,  or  any  successor  or  similar
applicable statute, or any administrative insolvency scheme, against any Seller,
a Guarantor or any of any Seller's or a Guarantor's Subsidiaries;  or any of any
Seller's, Guarantor's or any Seller's or a Guarantor's Subsidiaries' Property is
sequestered by court or administrative order; or a petition is filed against any
Seller, a Guarantor or any of any Seller's or a Guarantor's  Subsidiaries  under
any bankruptcy,


                                       31








reorganization,  arrangement,  insolvency,  readjustment  of debt,  dissolution,
moratorium,  delinquency or liquidation law of any jurisdiction,  whether now or
subsequently in effect;

     g.  any  Seller,  a  Guarantor  or  any of any  Seller's  or a  Guarantor's
Subsidiaries  files a voluntary  petition in  bankruptcy  seeks relief under any
provision   of  any   bankruptcy,   reorganization,   moratorium,   delinquency,
arrangement, insolvency, readjustment of debt, dissolution or liquidation law of
any  jurisdiction  whether  now or  subsequently  in effect;  or consents to the
filing  of any  petition  against  it under  any such law;  or  consents  to the
appointment  of or taking  possession  by a  custodian,  receiver,  conservator,
trustee,  liquidator,  sequestrator  or similar  official  for any  Seller,  any
Guarantor or any of any Seller's or any Guarantor's  Subsidiaries,  or of all or
any part of any Seller's,  any  Guarantor's  or any Seller's or any  Guarantor's
Subsidiaries'  Property;  or makes an assignment  for the benefit of any Seller,
any Guarantor or any Seller's or any Guarantor's Subsidiaries' creditors;

     h. any final,  nonappealable  judgment or order for the payment of money in
excess of (i) $5,000,000 with respect to NFI and (ii) $1,000,000 with respect to
all other parties  referenced in this  subsection  (h), in the aggregate (to the
extent  that it is, in the  reasonable  determination  of Buyer,  uninsured  and
provided that any insurance or other credit posted in connection  with an appeal
shall not be deemed  insurance for these purposes) shall be rendered against any
Seller,  the  Guarantor  or  any  of  Sellers'  or  Guarantor's  Affiliates  and
Subsidiaries  by one or more  courts,  administrative  tribunals or other bodies
having  jurisdiction  over  them  and  the  same  shall  not be  discharged  (or
provisions shall not be made for such  discharge),  satisfied,  or bonded,  or a
stay of execution thereof shall not be procured, within sixty (60) days from the
date of entry  thereof  and any  Seller,  the  Guarantor  or any of  Sellers' or
Guarantor's Affiliates and Subsidiaries,  as applicable,  shall not, within said
period of sixty (60) days,  appeal therefrom and cause the execution  thereof to
be stayed during such appeal;

     i. any  Governmental  Authority or any person,  agency or entity  acting or
purporting to act under  governmental  authority  shall have taken any action to
condemn,  seize or  appropriate,  or to assume custody or control of, all or any
substantial  part of the  Property of any Seller,  any  Guarantor  or any of any
Seller's  or any  Guarantor's  Subsidiaries,  or shall  have taken any action to
displace the  management of any Seller,  any Guarantor or any of any Seller's or
any  Guarantor's  Subsidiaries  or to  materially  curtail its  authority in the
conduct of the business of any Seller,  any  Guarantor or any of any Seller's or
any Guarantor's  Subsidiaries,  or takes any action in the nature of enforcement
to remove or  materially  limit or restrict  the  approval  of any  Seller,  any
Guarantor or any of any Seller's or any  Guarantor's  Subsidiaries as an issuer,
buyer or a seller/servicer of the Purchased Assets or similar securities;

     j. any Seller,  any  Guarantor  or any of any  Seller's or any  Guarantor's
Subsidiaries  shall default  under,  or fail to perform as requested  under,  or
shall  otherwise  breach the  material  terms of any  instrument,  agreement  or
contract  relating to  Indebtedness,  and such default,  failure or breach shall
entitle any counterparty to declare an amount of such  Indebtedness in excess of
(i) $5,000,000 with respect to NFI and (ii) $1,000,000 with respect to all other
parties  referenced in this  subsection  (j), to be due and payable prior to the
maturity thereof;

     k. in the  reasonable  good faith  judgment of Buyer any  Material  Adverse
Change shall have occurred  with respect to the  financial  condition of NFI and
its Subsidiaries taken as a whole;


                                       32








     l. any Seller or any Guarantor  shall admit in writing its inability to, or
intention  not to,  perform any of any Seller's or such  Guarantor's  respective
material Obligations;

     m. any Seller or any Guarantor dissolves or sells,  transfers, or otherwise
disposes  of a  material  portion  of  any  Seller's  or  such  Guarantor's  (as
applicable)  business or assets  (other than  pursuant  to a  securitization  or
similar  transaction in the ordinary course of business)  unless Buyer's written
consent is given;

     n. this  Agreement  shall  for any  reason  cease to create a valid,  first
priority security  interest or ownership  interest upon transfer in any material
portion of the Purchased Assets or Collateral purported to be covered hereby;

     o.  either  any  Seller's  or  any  Guarantor's  audited  annual  financial
statements or the notes thereto or other opinions or conclusions  stated therein
shall be  qualified  or limited by reference to the status of any Seller or such
Guarantor as a "going concern" or a reference of similar import;

     p. the ratio of NFI's Adjusted  Tangible Net Worth to Required  Equity on a
consolidated basis at any date is less than 1.0:1.0;

     q. the Adjusted Tangible Net Worth of NFI, on a consolidated basis, is less
than or equal to  $517,000,000  at any time,  provided that such amount shall be
reduced by the amount of the 2006 Dividend;

     r. any (a)  termination by any Seller of any Servicer or subservicer or the
Mortgage  Assets  without the prior  written  consent of Buyer to the extent any
Seller's  consent is  required  for such  termination  or (b)  amendment  of any
Servicing Agreement without the prior written consent of Buyer to the extent any
Seller's consent is required for such occurrences, (c) failure by any Seller (if
it is the Servicer) or any Servicer to service the Mortgage Assets in accordance
with (i) industry  standards  for similar  loans with third  parties or (ii) the
standards set forth in the Servicing Agreement;

     s. any failure of NFI, on a consolidated basis, to maintain Liquidity of at
least  $30,000,000  at any time or  failure  of NFI to notify the Agent if NFI's
Liquidity falls below $45,000,000 at any time;

     t. any  failure  by Sellers or  Guarantors  to pay any Price  Differential,
Margin  Deficit or other  amount  payable  under this  Agreement or the Existing
Agreements after any applicable grace periods;

     u. any event of default under the Existing Agreements;

     v. any Person shall engage in any "prohibited  transaction"  (as defined in
Section  406 of ERISA or Section  4975 of the Code)  involving  any Plan,  which
could reasonably be expected to have a Material Adverse Effect;

     w.  failure  of the  Sellers to provide  same day  notification  as soon as
practicable  to Buyer of any  margin  call  under any  repurchase  or  financing
facility; or


                                       33








     x. failure to allow Buyer to exercise its options as set forth in Section 6
hereof  with  respect to any margin  calls  under any  repurchase  or  financing
facility which exceeds $5,000,000 in the aggregate.

19.  REMEDIES

     Upon the  occurrence of an Event of Default,  Buyer,  at its option,  shall
have any or all of the following rights and remedies,  which may be exercised by
Buyer in good faith:

     a. The  Repurchase  Date for each  Transaction  hereunder  shall be  deemed
immediately to occur.

     b. The related Seller's  obligations  hereunder to repurchase all Purchased
Assets  at  the  Repurchase  Price  therefor  on the  Repurchase  Date  in  such
Transactions shall thereupon become immediately due and payable; all Income paid
after such exercise or deemed exercise shall be retained by Buyer and applied to
the  aggregate  Repurchase  Prices and any other  amounts  owing by the  related
Seller  hereunder;  the  related  Seller and each  Guarantor  shall  immediately
deliver to Buyer or its designee any and all original papers,  records and files
relating  to the  Purchased  Assets  subject  to  such  Transaction  then in any
Seller's and any Guarantor's possession and/or control; and all right, title and
interest in and  entitlement  to such  Purchased  Assets thereon shall be deemed
transferred to Buyer.

     c. Buyer may (A) sell,  on or following the Business Day following the date
on which the Repurchase  Price became due and payable  pursuant to Section 19(b)
without  notice or demand of any kind,  at a public or private  sale and at such
price or prices as Buyer may reasonably deem  satisfactory  any or all Purchased
Assets or (B) in its sole discretion  elect, in lieu of selling all or a portion
of such Purchased  Assets,  to give the related Seller credit for such Purchased
Assets in an amount equal to the Market Value of the  Purchased  Assets  against
the aggregate unpaid Repurchase Price and any other amounts owing by the related
Seller  hereunder.  The  related  Seller  shall  remain  liable to Buyer for any
amounts  that  remain  owing to  Buyer  following  a sale or  credit  under  the
preceding sentence. The proceeds of any disposition of Purchased Assets shall be
applied  first to the  reasonable  costs and  expenses  incurred by the Buyer in
connection with or as a result of an Event of Default; second to Breakage Costs,
costs of cover  and/or  related  hedging  transactions;  third to the  aggregate
Repurchase Prices; and fourth to all other Obligations.

     d. Reserved.

     e. The  parties  recognize  that it may not be possible to purchase or sell
all of the  Purchased  Assets on a particular  Business Day, or in a transaction
with the same  purchaser,  or in the same  manner  because  the  market for such
Purchased  Assets  may not be  liquid.  In view of the  nature of the  Purchased
Assets,  the parties agree that  liquidation  of a Transaction or the underlying
Purchased  Assets  does not  require a public  purchase  or sale and that a good
faith  private  purchase  or  sale  shall  be  deemed  to  have  been  made in a
commercially  reasonable manner.  Accordingly,  the Buyer may elect the time and
manner of liquidating  any Purchased  Asset and nothing  contained  herein shall
obligate Buyer to liquidate any Purchased Asset on the occurrence of an Event of
Default or to liquidate all  Purchased  Assets in the same manner or on the same
Business  Day  or  constitute  a


                                       34








waiver  of any right or remedy of  Buyer.  Notwithstanding  the  foregoing,  the
parties to this Agreement agree that the Transactions  have been entered into in
consideration of and in reliance upon the fact that all  Transactions  hereunder
constitute  a  single  business  and   contractual   obligation  and  that  each
Transaction has been entered into in consideration of the other Transactions.

     f. In  addition  to its  rights  hereunder,  Buyer  shall have the right to
proceed  against  any  of  the  related  Seller's  assets  which  may  be in the
possession of Buyer,  any of Buyer's  Affiliates or its designee,  including the
right to liquidate  such assets and to set-off the proceeds  against monies owed
by the related  Seller to Buyer  pursuant to this  Agreement.  Buyer may set off
cash,  the proceeds of the  liquidation  of the Purchased  Assets and Additional
Purchased  Assets,  any other  Collateral  or its proceeds and all other sums or
obligations  owed by Buyer to the related  Seller  hereunder  against all of the
related  Seller's  Obligations to Buyer,  whether under this Agreement,  under a
Transaction,  or under any  other  agreement  between  the  parties  (including,
without limitation, the Existing Agreements), or otherwise,  whether or not such
Obligations  are then due,  without  prejudice  to Buyer's  right to recover any
deficiency.

     g. Buyer may direct all Persons servicing the Purchased Assets to take such
action with respect to the Purchased Assets as Buyer determines appropriate.

     h. The  related  Seller  shall be  liable  to Buyer  for the  amount of all
expenses  (plus  interest  thereon at a rate  equal to the  Default  Rate),  and
Breakage Costs and all costs and expenses  incurred  within 30 days of the Event
of Default in connection  with hedging or covering  transactions  related to the
Purchased  Assets.  Sellers  shall also be  required to pay to Buyer the Default
Fee.

     i. Each Seller and each Guarantor  shall cause all sums received by it with
respect to the Purchased Assets to be remitted to Buyer (or such other Person as
Buyer may direct) after receipt thereof.

     j. Buyer  shall  without  regard to the  adequacy of the  security  for the
Obligations,  be entitled to the  appointment  of a receiver by any court having
jurisdiction,  without  notice,  to take  possession  of and  protect,  collect,
manage, liquidate, and sell the Purchased Assets and any other Collateral or any
portion  thereof,  collect the payments due with respect to the Purchased Assets
and any other Collateral or any portion thereof,  and do anything that the Buyer
is  authorized  hereunder  to do.  The  related  Seller  shall pay all costs and
expenses  incurred by Buyer in connection with the appointment and activities of
such receiver.

     k. Buyer may  enforce  its  rights and  remedies  hereunder  without  prior
judicial process or hearing,  and the related Seller hereby expressly waives, to
the extent  permitted by law, any right the related Seller might  otherwise have
to require Buyer to enforce its rights by judicial  process.  The related Seller
also waives,  to the extent  permitted  by law,  any defense the related  Seller
might  otherwise  have  to the  Obligations,  arising  from  use of  nonjudicial
process,  enforcement and sale of all or any portion of the Purchased Assets and
any other Collateral or from any other election of remedies.  The related Seller
recognizes  that  nonjudicial  remedies  are  consistent  with the usages of the
trade, are responsive to commercial necessity and are the result of a bargain at
arm's length.


                                       35








     l. In addition to all the rights and remedies specifically provided herein,
Buyer shall have all other rights and remedies  provided by applicable  federal,
state,  foreign,  and  local  laws,  whether  existing  at law,  in equity or by
statute.

     m. Upon the occurrence of an Event of Default,  Buyer shall have, except as
otherwise expressly provided in this Agreement, the right to exercise any of its
rights and/or remedies without presentment, demand, protest or further notice of
any kind  other  than as  expressly  set forth  herein,  all of which are hereby
expressly waived by the related Seller.

     n. The related  Seller hereby  authorizes  Buyer,  at the related  Seller's
expense,  to  file  such  financing  statement  or  statements  relating  to the
Purchased  Assets and the  Collateral  without  the related  Seller's  signature
thereon as Buyer at its option may deem  appropriate,  and appoints Buyer as the
related  Seller's  attorney-in-fact  to execute any such financing  statement or
statements  in the  related  Seller's  name and to perform  all other acts which
Buyer deems  appropriate to perfect and continue the lien and security  interest
granted  hereby and to protect,  preserve and realize upon the Purchased  Assets
and the Collateral,  including,  but not limited to, the right to endorse notes,
complete  blanks in documents and execute  assignments  on behalf of the related
Seller as its  attorney-in-fact.  This  power of  attorney  is  coupled  with an
interest and is irrevocable without Buyer's consent.

     o. Buyer may direct a Seller,  or its Affiliate,  to resign as the servicer
of the Mortgage Assets and to cooperate with any successor servicer.

20.  DELAY NOT WAIVER; REMEDIES ARE CUMULATIVE

     No failure on the part of Buyer to  exercise,  and no delay in  exercising,
any right,  power or remedy  hereunder  shall operate as a waiver  thereof,  nor
shall any single or  partial  exercise  by Buyer of any  right,  power or remedy
hereunder  preclude any other or further exercise thereof or the exercise of any
other  right,  power or remedy.  All rights and  remedies of Buyer  provided for
herein are  cumulative  and in addition to any and all other rights and remedies
provided by law, the Program  Documents and the other instruments and agreements
contemplated  hereby and thereby,  and are not  conditional or contingent on any
attempt by Buyer to exercise any of its rights under any other related document.
Buyer may exercise at any time after the  occurrence  of an Event of Default one
or more remedies, as it so desires, and may thereafter at any time and from time
to time exercise any other remedy or remedies.

21.  USE OF EMPLOYEE PLAN ASSETS

     No assets of an  employee  benefit  plan  subject to any  provision  of the
Employee  Retirement  Income Security Act of 1974, as amended ("ERISA") shall be
used by either party hereto in a Transaction.

22.  INDEMNITY

     a.  The  related  Seller  agrees  to  pay  on  demand  (i)  all  reasonable
out-of-pocket  costs and  expenses  of Agent and  Buyer in  connection  with the
preparation,  execution, delivery,  modification and amendment of this Agreement
(including,  without  limitation,  (A) all collateral  review and UCC search and
filing fees and expenses and (B) the reasonable fees and expenses of counsel for
Agent


                                       36








and  Buyer  with  respect  to  advising  Agent and  Buyer as to its  rights  and
responsibilities,  or the  perfection,  protection or  preservation of rights or
interests,  under this Agreement,  with respect to negotiations with the related
Seller or with other creditors of the related Seller or any of its  Subsidiaries
arising  out of any Default or any events or  circumstances  that may arise to a
Default and with respect to presenting  claims in or otherwise  participating in
or monitoring any bankruptcy,  insolvency or other similar proceeding  involving
creditors' rights generally and any proceeding ancillary thereto);  and (ii) all
costs and expenses of Agent and Buyer in connection with the enforcement of this
Agreement, whether in any action, suit or litigation, any bankruptcy, insolvency
or other similar proceeding  affecting  creditors' rights generally  (including,
without  limitation,  the reasonable  fees and expenses of counsel for Agent and
Buyer) whether or not the transactions contemplated hereby are consummated.

     b. The related  Seller agrees to indemnify and hold harmless Agent and each
of its respective  Affiliates and Buyer and each of their respective  Affiliates
and  their  officers,  directors,  employees,  agents  and  advisors  (each,  an
"Indemnified Party") from and against (and will reimburse each Indemnified Party
as the same is incurred) any and all claims,  damages,  losses,  liabilities and
expenses (including, without limitation, reasonable fees and expenses of counsel
and allocated costs of internal  counsel) that may be incurred by or asserted or
awarded  against  any  Indemnified  Party,  in each  case  arising  out of or in
connection with or by reason of (including,  without  limitation,  in connection
with any  investigation,  litigation  or other  proceeding  (whether or not such
Indemnified Party is a party thereto) relating to, resulting from or arising out
of any of the Program  Documents and all other documents  related  thereto,  any
breach of a  representation  or warranty of any Seller or any  Guarantor  or any
Seller's or any  Guarantor's  officers in this  Agreement  or any other  Program
Document,  and all actions taken  pursuant  thereto) (i) the  Transactions,  the
actual or proposed use of the proceeds of the  Transactions,  this  Agreement or
any of the transactions contemplated thereby, including, without limitation, any
acquisition or proposed  acquisition  or (ii) the actual or alleged  presence of
hazardous materials on any Property or any environmental  action relating in any
way to any Property,  except to the extent such claim, damage, class,  liability
or expense is found in a final,  non-appealable judgment by a court of competent
jurisdiction to have resulted from such Indemnified  Party's gross negligence or
willful  misconduct  or is the  result  of a  claim  made by any  Seller  or any
Guarantor  against  the  Indemnified  Party,  and  the  related  Seller  or such
Guarantor is ultimately  the  successful  party in any  resulting  litigation or
arbitration.  The related  Seller  also  agrees not to assert any claim  against
Agent or any of its Affiliates,  Buyer or any of its Affiliates, or any of their
respective officers, directors,  employees,  attorneys and agents, on any theory
of liability, for special,  indirect,  consequential or punitive damages arising
out of or otherwise  relating to the Program  Documents,  the actual or proposed
use  of  the  proceeds  of  the  Transactions,  this  Agreement  or  any  of the
transactions  contemplated thereby. THE FOREGOING INDEMNITY AND AGREEMENT NOT TO
ASSERT CLAIMS EXPRESSLY APPLIES, WITHOUT LIMITATION,  TO THE NEGLIGENCE (BUT NOT
GROSS NEGLIGENCE, BAD FAITH OR WILLFUL MISCONDUCT) OF THE INDEMNIFIED PARTIES.

     c. Without limitation on the provisions of Section 4, if any payment of the
Repurchase  Price of any Transaction is made by the related Seller other than on
the then scheduled Repurchase Date thereto as a result of an acceleration of the
Repurchase  Date  pursuant  to Section 19 or for any other  reason,  the related
Seller shall, except as otherwise provided in Sections 15 and 24, upon demand by
Buyer, pay to Buyer any Breakage Costs incurred as of a result of such payment.


                                       37








     d. If the related Seller fails to pay when due any costs, expenses or other
amounts  payable  by it under this  Agreement,  including,  without  limitation,
reasonable fees and expenses of counsel and indemnities, such amount may be paid
on behalf of the related Seller by Buyer, in its sole discretion.

     e. Without  prejudice to the survival of any other agreement of the related
Seller hereunder,  the easements and obligations of the related Seller contained
in this Section  shall survive the payment in full of the  Repurchase  Price and
all other amounts  payable  hereunder  and delivery of the  Purchased  Assets by
Buyer against full payment therefor.

23.  WAIVER OF REDEMPTION AND DEFICIENCY RIGHTS

     The related Seller hereby expressly waives, to the fullest extent permitted
by law, every statute of limitation on a deficiency  judgment,  any reduction in
the  proceeds of any  Purchased  Assets as a result of  restrictions  upon Buyer
contained  in  the  Program  Documents  or any  other  instrument  delivered  in
connection  therewith,  and any right  that it may have to  direct  the order in
which  any of the  Purchased  Assets  shall be  disposed  of in the event of any
disposition pursuant hereto.

24.  REIMBURSEMENT

     All sums  reasonably  expended by Buyer in connection  with the exercise of
any right or remedy provided for herein shall be and remain the related Seller's
obligation.  The related Seller agrees to pay, with interest at the Default Rate
to  the  extent  that  an  Event  of  Default  has  occurred,   the   reasonable
out-of-pocket  expenses  and  reasonable  attorneys'  fees  incurred by Buyer in
connection with the preparation,  enforcement or  administration  of the Program
Documents,  the  taking of any  action,  including  legal  action,  required  or
permitted to be taken by Buyer (without  duplication to Buyer) pursuant thereto,
any "due diligence" or loan agent reviews  conducted by Buyer or on their behalf
or by  refinancing  or  restructuring  in the  nature of a  "workout".  If Buyer
determines that, due to the introduction of, any change in, or the compliance by
Buyer with (i) any eurocurrency  reserve  requirement or (ii) the interpretation
of any law,  regulation  or any  guideline  or request  from any central bank or
other  Governmental  Authority  (whether or not having the force of law),  there
shall be an  increase  in the cost to Buyer in  engaging  in the  present or any
future  Transactions,  then the related Seller agrees to pay to Buyer, from time
to time, upon demand by Buyer the actual cost of additional amounts as specified
by Buyer to compensate Buyer for such increased costs. Notwithstanding any other
provisions  in  this  Agreement,  in  the  event  of  any  such  change  in  the
eurocurrency reserve requirement or the interpretation of any law, regulation or
any guideline or request from any central bank or other Governmental  Authority,
the  related  Seller  will have the right to  terminate  all  Transactions  then
outstanding  as of a date  selected by the related  Seller,  which date shall be
prior to the applicable  Repurchase Date and which date shall thereafter for all
purposes hereof,  be deemed to be the Repurchase Date. In addition,  Buyer shall
promptly  notify  Seller if any events in clause (i) or (ii) of this  Section 24
occur.

25.  FURTHER ASSURANCES

     The Sellers and each Guarantor agree to do such further acts and things and
to execute and deliver to Buyer such  additional  assignments,  acknowledgments,
agreements,  powers and instruments as are reasonably required by Buyer to carry
into effect the intent and purposes of this


                                       38








Agreement,  to perfect  the  interests  of Buyer in the  Purchased  Assets or to
better assure and confirm unto Buyer its rights, powers and remedies hereunder.

26.  ENTIRE AGREEMENT; PRODUCT OF NEGOTIATION

     This  Agreement  supersedes  and  integrates  all  previous   negotiations,
contracts,  agreements and understandings between the parties relating to a sale
and  repurchase of Purchased  Assets  thereto,  and it,  together with the other
Program Documents, and the other documents delivered pursuant hereto or thereto,
contains  the entire  final  agreement  of the  parties.  No prior  negotiation,
agreement, understanding or prior contract shall have any validity therefor.

27.  TERMINATION

     The Facility  shall  remain in effect  until the earliest of the  following
(the  "Termination  Date"):  (i) May 29,  2008,  (ii) at Buyer's  option  upon the
occurrence of an Event of Default,  (iii) Buyer,  at its option,  terminates the
Facility  upon the  occurrence  of a Change of Control at any time within ninety
(90) days following such Change of Control or (iv) at Sellers'  option upon five
(5)  business  days  notice to Buyer of Sellers'  intention  to  terminate  this
Facility.  However,  no such  termination  shall  affect  the  related  Seller's
outstanding  obligations to Buyer at the time of such  termination.  The related
Seller's  obligations to indemnify Buyer pursuant to this Facility shall survive
the termination  hereof.  Any such  termination as set forth above shall require
Sellers to pay Buyer the  Repurchase  Price plus the Repayment Fee. In addition,
for any such termination  pursuant to clauses (ii) or (iii),  Sellers shall also
pay Buyer the Default Fee or the Change in Control Fee, respectively.

28.  ASSIGNMENT

     The Program  Documents are not assignable by the related Seller.  Buyer may
from time to time  assign all or a portion of its rights and  obligations  under
this  Agreement  and the  Program  Documents  without  consent  of the  Sellers;
provided,  however, that Buyer shall maintain,  for review by the related Seller
upon  written  request,  a  register  of  assignees  and a copy  of an  executed
assignment and acceptance by Buyer and assignee  ("Assignment and  Acceptance"),
specifying  the  percentage or portion of such rights and  obligations  assigned
and, in all cases, that such assignee will provide tax forms to Sellers claiming
a zero rate of withholding.  Upon such assignment,  (a) such assignee shall be a
party hereto and to each  Program  Document to the extent of the  percentage  or
portion set forth in the  Assignment  and  Acceptance,  and shall succeed to the
applicable  rights and obligations of Buyer  hereunder,  and (b) Buyer shall, to
the extent  that such  rights and  obligations  have been so  assigned  by it to
another  Person  approved  by  the  related  Seller  (such  approval  not  to be
unreasonably  withheld) which assumes the obligations of Buyer, be released from
its obligations  hereunder accruing  thereafter and under the Program Documents.
Unless  otherwise  stated in the Assignment and  Acceptance,  the related Seller
shall continue to take directions solely from Buyer unless otherwise notified by
Buyer in writing.  Buyer may distribute to any prospective assignee any document
or other information  delivered to Buyer by the related Seller.  Notwithstanding
any  assignment by Buyer  pursuant to this Section 28, Buyer shall remain liable
as to the Transactions.

29.  AMENDMENTS, ETC.


                                       39








     No amendment or waiver of any  provision of this  Agreement nor any consent
to any failure to comply  herewith or therewith  shall in any event be effective
unless the same shall be in writing  and signed by Sellers  and Buyer,  and then
such  amendment,  waiver or  consent  shall be  effective  only in the  specific
instance and for the specific purpose for which given.

30.  SEVERABILITY

     If any provision of any Program  Document is declared  invalid by any court
of competent jurisdiction,  such invalidity shall not affect any other provision
of the Program  Documents,  and each Program  Document  shall be enforced to the
fullest extent permitted by law.

31.  BINDING EFFECT: GOVERNING LAW

     This  Agreement  shall be binding  and inure to the  benefit of the parties
hereto and their respective successors and assigns,  except that Sellers may not
assign or transfer any of its rights or obligations  under this Agreement or any
other  Program  Document  without  the prior  written  consent  of  Buyer.  THIS
AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH, AND GOVERNED BY, THE LAW OF THE
STATE OF NEW YORK,  WITHOUT  GIVING  EFFECT TO THE  CONFLICT OF LAWS  PRINCIPLES
THEREOF.

32.  CONSENT TO JURISDICTION

     SELLERS HEREBY WAIVE TRIAL BY JURY. SELLERS HEREBY  IRREVOCABLY  CONSENT TO
THE NON-EXCLUSIVE  JURISDICTION OF ANY COURT OF THE STATE OF NEW YORK, OR IN THE
UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK,  ARISING OUT
OF OR RELATING TO THE PROGRAM  DOCUMENTS  IN ANY ACTION OR  PROCEEDING.  SELLERS
HEREBY  SUBMIT TO, AND WAIVE ANY  OBJECTION  SELLERS MAY HAVE TO,  NON-EXCLUSIVE
PERSONAL  JURISDICTION  AND VENUE IN THE COURTS OF THE STATE OF NEW YORK AND THE
UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, WITH RESPECT
TO ANY DISPUTES ARISING OUT OF OR RELATING TO THE PROGRAM DOCUMENTS.

33.  SINGLE AGREEMENT

     Each Seller,  each Guarantor and Buyer  acknowledge  that, and have entered
hereinto and will enter into each Transaction  hereunder in consideration of and
in reliance upon the fact that, all Transactions  hereunder  constitute a single
business and contractual  relationship  and have been made in  consideration  of
each other. Accordingly, each Seller, each Guarantor and Buyer each agree (i) to
perform all of its  obligations in respect of each  Transaction  hereunder,  and
that a default in the  performance of any such  obligations  shall  constitute a
default by it in respect of all Transactions hereunder,  and (ii) that payments,
deliveries and other transfers made by any of them in respect of any Transaction
shall be deemed to have been made in consideration  of payments,  deliveries and
other  transfer  in  respect  of  any  other  Transaction  hereunder,   and  the
obligations  to make any such payments,  deliveries  and other  transfers may be
applied against each other and netted.

34.  INTENT


                                       40








     Sellers,  Guarantors  and  Buyer  recognize  that  each  Transaction  is  a
"securities  contract" as that term is defined in Section 741 of Title 11 of the
United States Code, as amended ("USC").

     It is understood  that a Buyer's  right to liquidate  the Purchased  Assets
delivered to it in connection with the Transactions hereunder or to exercise any
other remedies pursuant to Section 19 hereof is a contractual right to liquidate
such Transaction as described in Sections 555 and 559 of Title 11 of the USC.

35.  NOTICES AND OTHER COMMUNICATIONS

     Except as  provided  herein,  any  notice  required  or  permitted  by this
Agreement  shall be in writing and shall be effective and deemed  delivered only
when  received  by the  party to which it is  sent;  provided,  however,  that a
facsimile  transmission  shall be deemed to be received when transmitted so long
as the  transmitting  machine has provided an electronic  confirmation  (without
error  message) of such  transmission.  Notice to NMI, NFI or NFI Holding  shall
constitute  notice to each and all of such  entities.  Any such notice  shall be
sent to a party at the address or facsimile transmission number set forth below:

if to NMI, NCFLLC or NCFC:

                  NovaStar Mortgage, Inc.
                  8140 Ward Parkway, Suite 300
                  Kansas City, Missouri 64114
                  Attention:    Todd Phillips
                  Telephone:    (816) 237-7559
                  Facsimile:    (816) 237-7515
                  E-mail:       todd.phillips@novastar1.com

if to NFI:

                  NovaStar Financial, Inc.
                  8140 Ward Parkway, Suite 300
                  Kansas City, Missouri 64114
                  Attention:    Todd Phillips
                  Telephone:    (816) 237-7559
                  Facsimile:    (816) 237-7515
                  E-mail:       todd.phillips@novastar1.com

if to NFI Holding:

                  NFI Holding Corporation
                  8140 Ward Parkway, Suite 300
                  Kansas City, Missouri 64114
                  Attention:    Todd Phillips
                  Telephone:    (816) 237-7559
                  Facsimile:    (816) 237-7515


                                       41








                  E-mail:       todd.phillips@novastar1.com

if to Wachovia Investment Holdings, LLC:

                  Wachovia Investment Holdings, LLC
                  One Wachovia Center
                  301 South College Street
                  Charlotte, North Carolina 28288
                  Attention:  RMC Asset-Backed Lending
                  Telephone:    (704) 715-6133
                  Facsimile:    (704) 383-8121

                  With a copy to:
                  Wachovia Capital Markets, LLC
                  One Wachovia Center
                  301 South College Street
                  Charlotte, NC 28288
                  Attention:  RMC Asset-Backed Lending
                  Telephone:    (704) 715-6133
                  Facsimile:    (704) 383-8121

                  or, for Transaction Notices and related documents:
                  Attention:    Chad Cote
                  Telephone:    704-715-1150
                  Facsimile:    704-715-1823
                  E-mail:       chad.cote@wachovia.com

as such address or number may be changed by like notice.


                                       42








36.  CONFIDENTIALITY

     (a) This Agreement and its terms,  provisions,  supplements and amendments,
and transactions and notices  hereunder,  are proprietary to Buyer and Agent and
shall be held by Sellers (and Sellers shall cause each  Guarantor to hold it) in
strict  confidence  and shall not be  disclosed  to any third party  without the
consent of Buyer except for (i) disclosure to each Seller's  direct and indirect
parent companies, attorneys, agents or accountants, provided that such attorneys
or accountants likewise agree to be bound by this covenant of confidentiality or
(ii) upon prior written  notice to Buyer,  which is hereby given with respect to
the Form  8-K NFI will  file in  connection  with  entry  into  this  Agreement,
disclosure  required  by law,  rule,  regulation  or  order  of a court or other
regulatory  body or (iii)  with  prior  written  notice to Buyer,  any  required
Securities  and Exchange  Commission or state  securities'  law  disclosures  or
filings,  which shall not include the Side  Letter  unless  otherwise  agreed by
Buyer in writing.  Notwithstanding  anything herein to the contrary,  each party
(and each employee,  representative,  or other agent of each party) may disclose
to any and all persons,  without  limitation of any kind,  the tax treatment and
tax  structure  of the  transaction  and all  materials  of any kind  (including
opinions  or other tax  analyses)  that are  provided to it relating to such tax
treatment and tax structure.  For this purpose,  tax treatment and tax structure
shall not include  (i) the  identity  of any  existing  or future  party (or any
Affiliate  of  such  party)  to this  Agreement  or (ii)  any  specific  pricing
information  or other  commercial  terms,  including  the  amount  of any  fees,
expenses,  rates  or  payments  arising  in  connection  with  the  transactions
contemplated by this Agreement.

     (b) Buyer acknowledges that certain of the information provided to it by or
on behalf of any Seller or the Guarantor in connection  with this  Agreement and
the transactions contemplated hereby is or may be confidential, and Buyer agrees
that, unless such Seller or the Guarantor, as applicable,  shall otherwise agree
in writing  (subject to subsections (c) and (d) below),  Buyer will not disclose
to any other person or entity any information regarding any non-public financial
statements,  reports  and  other  information  furnished  by any  Seller  or the
Guarantor  to Buyer  pursuant to or in  connection  with any  Program  Document,
unless such information was known to Buyer on a non-confidential  basis prior to
disclosure by any Seller or the Guarantor.

     (c) Each party may disclose certain confidential  information to (i) any of
such  party's  attorneys,  consultants,   accountants,  financial  advisors  and
independent  auditors,  (ii) any actual or potential  assignee or participant of
Buyer  under  this  Agreement,  (iii) any  municipal,  state,  federal  or other
regulatory body in order to comply with any law, order,  regulation,  request or
ruling or (iv) in the event such party is legally compelled by subpoena or other
similar process.  After an Event of Default, Buyer may disclose any confidential
information in connection with the sale of the Purchased Assets.

     (d) Notwithstanding  anything contained herein to the contrary, Buyer shall
not  disclose  or  otherwise  take any action  with  respect to any  information
furnished by any Seller,  the Guarantor or any attorney or other  representative
of any Seller or the  Guarantor,  that would cause any Seller,  the Guarantor or
any affiliate thereof, to be in violation of any requirement of any law, rule or
regulation prohibiting the disclosure of information regarding mortgagors.

37.  JOINT AND SEVERAL LIABILITY


                                       43







     The  Sellers  hereby  acknowledge  and  agree  that  they are  jointly  and
severally liable to the Buyer for all  representations,  warranties,  covenants,
obligations and liabilities of each of the Sellers hereunder. The Sellers hereby
further acknowledge and agree that any Default,  Event of Default or breach of a
representation,  warranty  or  covenant by any Seller  under this  Agreement  is
hereby  considered  a  Default,  Event of Default  or breach by each  Seller.  A
Seller's  subrogation  claims arising from payments to Buyer shall  constitute a
capital  investment in another Seller (1)  subordinated  to any claims of Buyer,
and (2) equal to a ratable  share of the equity  interests in such  Seller.  The
Sellers  hereby:  (a)  acknowledge  and  agree  that  the  Buyer  shall  have no
obligation  to proceed  against one Seller before  proceeding  against the other
Seller,  (b) waive any defense to their  obligations under this Agreement or any
other  Program  Document  based upon or arising out of the  disability  or other
defense or cessation of liability of one Seller versus the other or of any other
Person, and (c) waive any right of subrogation or ability to proceed against any
Person  or to  participate  in  any  security  for  the  Obligations  until  the
Obligations have been paid and performed in full.

38.  CROSS COLLATERALIZATION

     The Purchased Assets subject to any Transaction hereunder, purchased assets
pursuant  to  the  Existing  Agreements  or  purchased  assets  pursuant  to any
repurchase  agreement or similar  financing  agreement among Buyer,  Sellers and
Guarantors  or  any   affiliates  of  Sellers  or  Guarantors   shall  be  cross
collateralized  with the Purchased  Assets  subject to any purchase  transaction
pursuant to any of the existing facilities.

                            [Signature Page Follows]


                                       44








     IN WITNESS WHEREOF, Sellers,  Guarantors, Buyer and Agent have caused their
names to be signed  to this  Master  Repurchase  Agreement  by their  respective
officers thereunto duly authorized as of the date first above written.


                                  NOVASTAR MORTGAGE, INC., as Seller


                                  By:   /s/ Todd M. Phillips
                                     -------------------------------------------
                                  Name:  Todd M. Phillips
                                       -----------------------------------------
                                  Title: Vice President, Treasurer & Controller
                                        ----------------------------------------



                                  NOVASTAR CERTIFICATES FINANCING LLC, as
                                  Seller


                                  By:   /s/ Todd M. Phillips
                                     -------------------------------------------
                                  Name:  Todd M. Phillips
                                       -----------------------------------------
                                  Title: Vice President, Treasurer & Controller
                                        ----------------------------------------


                                  NOVASTAR CERTIFICATES FINANCING
                                  CORPORATION, as Seller


                                  By:   /s/ Todd M. Phillips
                                     -------------------------------------------
                                  Name:  Todd M. Phillips
                                       -----------------------------------------
                                  Title: Vice President, Treasurer & Controller
                                        ----------------------------------------









                                  WACHOVIA INVESTMENT HOLDINGS, LLC, as Buyer


                                  By:  /s/ Andrew W. Riebe
                                     -------------------------------------------
                                  Name:  Andrew W. Riebe
                                       -----------------------------------------
                                  Title: Director
                                        ----------------------------------------


                                  WACHOVIA CAPITAL MARKETS, LLC, as Agent


                                  By:  /s/ Scott Schuman
                                     -------------------------------------------
                                  Name:  Scott Schuman
                                       -----------------------------------------
                                  Title: Vice President
                                        ----------------------------------------









Acknowledged and Agreed:

NFI HOLDING CORPORATION, as Guarantor


By:  /s/ Todd M. Phillips
   ------------------------------------------
Name:  Todd M. Phillips
     ----------------------------------------
Title: Vice President, Treasurer & Controller
      ---------------------------------------


NOVASTAR FINANCIAL, INC., as Guarantor


By:  /s/ Todd M. Phillips
   ------------------------------------------
Name:  Todd M. Phillips
     ----------------------------------------
Title: Vice President, Treasurer & Controller
      ---------------------------------------