Exhibit
        10.2

      


      ISDA®

      International
        Swaps and Derivatives Association, Inc.

      


      NOVATION
        AGREEMENT

      


      dated
        as
        of February 28, 2007 among:

      


      THE
        ROYAL
        BANK OF SCOTLAND PLC.
        (the
        "Remaining
        Party"),
        

      NOVASTAR
        MORTGAGE, INC. (the "Transferor")
        

      


      AND

      


      NOVASTAR
        MORTGAGE SUPPLEMENTAL INTEREST TRUST, SERIES 2007-1 (the "Transferee").


       

      The
        Remaining Party and the Transferor are parties to a 1992 ISDA Master dated
        as of
        July 19, 2006 (the “Old
        Agreement”).
        The
        Remaining Party and the Transferor originally entered into certain transactions
        (each an "Old
        Transaction")
        under
        the Old Agreement, each evidenced by a Confirmation (an "Old
        Confirmation")
        with
        reference number D16120156, D16120161, D16126990, D16126995, D16139827,
        D16139828, D16141301, D16155893, D16165622, D16165623 respectively, attached
        hereto as Exhibit I. 

      


      The
        Remaining Party and the Transferee are simultaneously entering into a 1992
        ISDA
        Master Agreement dated as of the date hereof in the form attached hereto
        as
        Exhibit II (the “New
        Agreement”).

      


      With
        effect from and including February [28], 2007 (the "Novation Date")
        the
        Transferor wishes to transfer by novation to the Transferee, and the Transferee
        wishes to accept the transfer by novation of, all the rights, liabilities,
        duties and obligations of the Transferor under and in respect of each Old
        Transaction, with the exception of the Excluded Rights and Obligations referred
        to below, with the effect that the Remaining Party and the Transferee enter
        into
        a new transaction (each a "New
        Transaction")
        between them having terms identical to those of each Old Transaction, subject
        to
        the same exceptions and as more particularly described below. For the avoidance
        of doubt, the first transaction period being novated in each Old Transaction
        is
        the full period ending on the Fixed Rate Payer Payment Date in March
        2007.

      


      The
        Remaining Party wishes to accept the Transferee as its sole counterparty
        with
        respect to the New Transactions.

      


      The
        Transferor and the Remaining Party wish to have released and discharged,
        as a
        result and to the extent of the transfer described above, their respective
        obligations under and in respect of the Old Transactions.

      


      Accordingly,
        the parties agree as follows: ---

      


      
        	
                1.

              	
                Definitions.

              


      

      


      Terms
        defined in the ISDA Master Agreement (Multicurrency-Cross Border) as published
        in 1992 by the International Swaps and Derivatives Association, Inc. (the
        "1992
        ISDA Master Agreement")
        are
        used herein as so defined, unless otherwise provided herein. For purposes
        of
        this Novation Agreement, "Excluded
        Rights and Obligations"
        means
        all obligations of each of the Transferor and the Remaining Party to Transfer
        (as defined in the Credit Support Annex to the Old Agreement) Eligible
        Collateral (as so defined) in respect of the Old Transactions and all related
        rights of the Remaining Party and the Transferor under the Old Agreement.
        

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      


      
        	
                2.

              	
                Transfer,
                  Release, Discharge and Undertakings.


              


      

      


      Subject
        to the execution and delivery of the New Agreement by each of the parties
        thereto to the other, with effect from and including the Novation Date and
        in
        consideration of the mutual representations, warranties and covenants contained
        in this Novation Agreement and other good and valuable consideration (the
        receipt and sufficiency of which are hereby acknowledged by each of the
        parties):

      


      
        	 	
                (a)

              	
                subject
                  to Section 2(d) of this Novation Agreement, the Remaining Party
                  and the
                  Transferor are each released and discharged from further obligations
                  to
                  each other with respect to each Old Transaction and their respective
                  rights against each other thereunder are cancelled, provided that
                  such
                  release and discharge shall not affect any rights, liabilities
                  or
                  obligations of the Remaining Party or the Transferor with respect
                  to
                  payments or other obligations due and payable or due to be performed
                  prior
                  to the Novation Date, and all such payments and obligations shall
                  be paid
                  or performed by the Remaining Party or the Transferor in accordance
                  with
                  the terms of the Old Transactions;

              


      

      


      
        	 	
                (b)

              	
                in
                  respect of each New Transaction, the Remaining Party and the Transferee
                  each undertake liabilities and obligations towards the other and
                  acquire
                  rights against each other identical in their terms to each corresponding
                  Old Transaction (and, for the avoidance of doubt, as if the Transferee
                  were the Transferor and with the Remaining Party remaining the
                  Remaining
                  Party, save for the Excluded Rights and Obligations and any other
                  rights,
                  liabilities or obligations of the Remaining Party or the Transferor
                  with
                  respect to payments or other obligations due and payable or due
                  to be
                  performed prior to the Novation Date). For the sake of clarity,
                  all
                  references to Independent Amounts shall be deemed deleted from
                  the
                  Confirmations for each New
                  Transaction;

              


      

      


      
        	 	
                (c)

              	
                each
                  New Transaction shall be governed by, form part of, and be subject
                  to the
                  New Agreement and the relevant Old Confirmation (which, in conjunction
                  and
                  as deemed modified to be consistent with this Novation Agreement,
                  shall be
                  deemed to be a Confirmation between the Remaining Party and the
                  Transferee), and the offices of the Remaining Party and the Transferee
                  for
                  purposes of each New Transaction shall be their offices at their
                  addresses
                  for notices provided for in the New Agreement;
                  and

              


      

      


      
        	 	
                (d)

              	
                on
                  the Novation Date, the Remaining Party shall transfer all of the
                  Posted
                  Collateral (as defined in the Credit Support Annex to the Old Agreement)
                  held by it in respect of the Old Transactions to the account or
                  accounts
                  of the Transferor identified by it by notice given to the Remaining
                  Party
                  as provided in the Old Agreement, and the Transferor shall transfer
                  all
                  Posted Collateral held by it in respect of the Old Transactions
                  to the
                  account or accounts of the Remaining Party identified by it by
                  notice
                  given to the Transferor as provided in the Old Agreement, in each
                  case
                  together with all Interest Amount and Distributions thereon (as
                  so
                  defined). The Remaining Party’s or the Transferor’s failure to effect
                  these transfers will continue to constitute Potential Events of
                  Default
                  and may constitute Events of Default under the Old Agreement
                  notwithstanding the transfer by novation contemplated
                  herein.

              


      

      


      
        	
                3.

              	
                Representations
                  and Warranties.

              


      

      
         

        (a)   On
          the
          date of this Novation Agreement:

        


        (i)    Each
          of
          the parties makes to each of the other parties those representations and
          warranties set forth in Section 3(a) of the 1992 ISDA Master Agreement
          with
          references in such Section to "this Agreement" or "any Credit Support Document"
          being deemed references to this Novation Agreement alone.

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

        


        (ii)   The
          Remaining Party and the Transferor each makes to the other, and the Remaining
          Party and the Transferee each makes to the other, the representation set
          forth
          in Section 3(b) of the 1992 ISDA Master Agreement, in each case with respect
          to
          the Old Agreement or the New Agreement, as the case may be, and taking
          into
          account the parties entering into and performing their obligations under
          this
          Novation Agreement.

         

        (iii)   Each
          of
          the Transferor and the Remaining Party represents and warrants to each
          other and
          to the Transferee that: 

        


        (A)    it
          has
          made no prior transfer (whether by way of security or otherwise) of the
          Old
          Agreement or any interest or obligation in or under the Old Agreement or
          in
          respect of any Old Transaction; and

        


        (B)    without
          prejudice to the obligations of the Remaining Party and the Transferor
          referred
          to in Section 2(d) of this Novation Agreement, as of the Novation Date,
          all
          obligations of the Transferor and the Remaining Party under each Old Transaction
          required to be performed before the Novation Date have been
          fulfilled.

        


        (iv)    Each
          party represents to each of the other parties: --

        


        (A)    Non-Reliance.
          Transferor and the Remaining Party is each acting for its own account,
          and with
          respect to the Transferee, Deutsche Bank National Trust Company is executing
          as
          Trustee for the Transferee. Each has made its own independent decisions
          to enter
          into this Novation Agreement and as to whether this Novation Agreement
          is
          appropriate or proper for it based upon its own judgment and upon advice
          from
          such advisers as it has deemed necessary. It is not relying on any communication
          (written or oral) of the other parties as investment advice or as a
          recommendation to enter into this Novation Agreement; it being understood
          that
          information and explanations related to the terms and conditions of this
          Novation Agreement shall not be considered investment advice or a recommendation
          to enter into this Novation Agreement. No communication (written or oral)
          received from any of the other parties shall be deemed to be an assurance
          or
          guarantee as to the expected results of this Novation Agreement;

        


        (B)    Assessment
          and Understanding. It is capable of assessing the merits of and understanding
          (on its own behalf or through independent professional advice), and understands
          and accepts, the terms, conditions and risks of this Novation Agreement.
          It is
          also capable of assuming, and assumes, the risks of this Novation Agreement;
          and

        


        (C)    Status
          of
          Parties. None of the other parties is acting as a fiduciary for or an adviser
          to
          it in respect of this Novation Agreement.

        


        (b)    The
          Transferor makes no representation or warranty and does not assume any
          responsibility with respect to the legality, validity, effectiveness, adequacy
          or enforceability of any New Transaction or the New Agreement or any documents
          relating thereto and assumes no responsibility for the condition, financial
          or
          otherwise, of the Remaining Party, the Transferee or any other person or
          for the
          performance and observance by the Remaining Party, the Transferee or any
          other
          person of any of its obligations under any New Transaction or the New Agreement
          or any document relating thereto and any and all such conditions and warranties,
          whether express or implied by law or otherwise, are hereby
          excluded.

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

        


        4. Counterparts.
          

        


        This
          Novation Agreement (and each amendment, modification and waiver in respect
          of
          it) may be executed and delivered in counterparts (including by facsimile
          transmission), each of which
          will be deemed an original.

        


        5. Costs
          and Expenses. 

        


        The
          parties will each pay their own costs and expenses (including legal fees)
          incurred in connection with this Novation Agreement and as a result of
          the
          negotiation, preparation and execution of this Novation Agreement.

        


        
          	
                  6.

                	
                  Amendments. 

                


        

        


        No
          amendment, modification or waiver in respect of this Novation Agreement
          will be
          effective unless in writing (including a writing evidenced by a facsimile
          transmission) and executed by each of the parties or confirmed by an exchange
          of
          telexes or electronic messages on an electronic messaging system and subject
          to
          the Rating Agency Condition (as defined in the New Agreement).

        


        
          	
                  7.

                	
                  (a)

                	
                  Governing
                    Law. 

                


        

        


        This
          Novation Agreement will be governed by and construed in accordance with
          the laws
          of the State of New York without reference to the conflict of laws provisions
          thereof.

        


        
          	 	
                  (b)

                	
                  Jurisdiction.
                    

                


        

        


        The
          terms
          of Section 13(b) of the 1992 ISDA Master Agreement shall apply to this
          Novation
          Agreement with references in such Section to "this Agreement" being deemed
          references to this Novation Agreement alone.

        


        (c) Not
          Acting in Individual Capacity.   

        


        
          	 	 	
                  Deutsche
                    Bank National Trust Company is signing this Novation Agreement
                    solely in
                    its capacity as Trustee of the Transferee under the Pooling and
                    Servicing
                    Agreement among NovaStar Mortgage Funding Corporation, NovaStar
                    Mortgage,
                    Inc., U.S. Bank National Association, and Deutsche Bank National
                    Trust
                    Company dated as of February 1, 2007 (the "Pooling
                    and Servicing Agreement")
                    and in the exercise of the powers and authority conferred and
                    vested in it
                    thereunder and not in its individual capacity. It is expressly
                    understood
                    and agreed by the parties hereto that (i) each of the representations,
                    undertakings and agreements herein stated to be those of Transferee
                    is
                    made and intended for the purpose of binding only the Transferee,
                    (ii)
                    nothing herein contained shall be construed as creating any liability
                    for
                    Deutsche Bank National Trust Company, individually or personally,
                    to
                    perform any covenant (either express or implied) contained herein
                    stated
                    to be those of Transferee, and all such liability, if any, is
                    hereby
                    expressly waived by the parties hereto, and such waiver shall
                    bind any
                    third party making a claim by or through one of the parties hereto,
                    and
                    (iii) under no circumstances shall Deutsche Bank National Trust
                    Company be
                    liable for the breach or failure of any obligation, representation,
                    warranty or covenant made or undertaken by the Transferee under
                    this
                    Novation Agreement. All persons having any claim against the
                    Trustee
                    reason of the Transactions contemplated by this Novation Agreement
                    shall
                    look only to the assets of NovaStar Mortgage Supplemental Interest
                    Trust,
                    Series 2007-1 (subject to the availability of funds therefor
                    in accordance
                    with the Flow of Funds as set forth in Article IV of the Pooling
                    and
                    Servicing Agreement) for payment or satisfaction
                    thereof.

                


        

        


        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

        The
          foregoing may not be construed to give to Majority Certificateholders any
          rights
          under this Novation  Agreement.

        


         

        
          	 	
                  (d)

                	
                  Pooling
                    and Servicing Agreement.

                


        

         

        Capitalized
          terms used in this Novation Agreement that are not defined herein and are
          defined in the Pooling and Servicing Agreement shall have the respective
          meanings assigned to them in the Pooling and Servicing Agreement. 

         

        
          	 	
                  (e)

                	
                  Agency
                    Role of Greenwich Capital Markets, Inc.
                    In
                    connection with this Novation Agreement, Greenwich Capital Markets,
                    Inc.
                    has acted as agent on behalf of the Remaining Party. Greenwich
                    Capital
                    Markets, Inc. has not guaranteed and is not otherwise responsible
                    for the
                    obligations of the Remaining Party under this
                    Agreement.

                


        

        


        
          	 	
                  (f)

                	
                  Calculation
                    

                


        

        


        
          	 	 	
                  Promptly
                    after each Reset Date, but
                    in no event later than three New York Business Days prior to
                    each related
                    Distribution Date, the
                    Calculation Agent shall deliver the reset notice in writing via
                    mail or
                    facsimile to the Trustee at the address provided in the notices
                    portion of
                    the New Agreement. 

                


        

        


        
          	 	
                  (g)

                	
                  Account
                    Details

                


        

        

          
            	 	
                    Remaining
                      Party: 

                  	
                    The
                      Royal Bank of Scotland 

                  


          

          Bank:
            JPMorgan Chase Bank

          ABA
            No.: 021000021

          Account
            No.: 400930153

          Attention:
            Financial Markets Fixed Income and Interest Rate Derivative Operations,
            London

          SWIFT
            Code: SWIFT RBOSGB2RTCM with JPMorgan Chase Bank, New York CHASUS33

          


          
            	 	
                    Transferee:

                  	
                    Deutsche
                      Bank National Trust Company

                  


          

          ABA
            # 021001033

          Acct
            # 01419663

          Acct
            Name NYLTD Funds Control - Stars West

          Ref:
            Trust Administration - Novastar 2007-1, Hedge confirm #
            [_____]

        


        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        


        IN
          WITNESS WHEREOF the parties have executed this Novation Agreement on the
          respective dates specified below with effect from and including the Novation
          Date.

        


        

          
            	
                    THE
                      ROYAL BANK OF SCOTLAND PLC

                  	
                    NOVASTAR
                      MORTGAGE, INC.

                  
	 	 
	
                    By:
                      Greenwich Capital Markets, Inc., its agent

                  	 
	 	 
	 	 
	
                    By: 
                      /s/ Deborah Pfeifer            

                  	
                    By: 
                      /s/ David L. Farris        

                  
	
                    Name:
                      Deborah Pfeifer

                  	
                    Name:
                      David L. Farris

                  
	
                    Title:
                      Vice President

                  	
                    Title:
                      Vice President

                  


          



         

        NOVASTAR
          MORTGAGE SUPPLEMENTAL INTEREST TRUST, SERIES 2007-1

        


        By:
          Deutsche Bank National Trust Company, as Trustee under the Pooling and
          Servicing
          Agreement, acting not in its individual capacity, but solely in its capacity
          as
          Trustee to NovaStar Mortgage Supplemental Interest Trust, Series
          2007-1

         

        By: 
          /s/ Karlene Benvenuto        
Name:
          Karlene Benvenuto
Title: Authorized
          Signer



        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        



        


        Exhibit
          I

        


        [Old
          Hedge Confirmations attached behind this page]

        


        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

      

    

    

      


      


      


      


      


      


      


      


      


      


      


      


      


      


      


      


      


      


      


      


      


      


      


      


      


      


      


      


      


      


      


      


      


      


      


      


      


      


      


      


      


      


      


      


      


      


      


      


      


      


      


      


      


      


      


      


      


      


      


      



    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

     

    Exhibit
      II

    


    [Form
      of
      New Agreement attached behind this page]