Document:

Novation Agreement

 Exhibit 10.4 
 ISDA® 
 International Swaps and Derivatives Association, Inc. 
 NOVATION AGREEMENT 
 dated as of June 15, 2006 among: 
 WACHOVIA BANK, NATIONAL ASSOCIATION (the “Remaining Party”), 
 NOVASTAR MORTGAGE, INC. (the
“Transferor”) 
 AND 
 NOVASTAR MORTGAGE SUPPLEMENTAL INTEREST TRUST, SERIES 2006-2 (the “Transferee”). 
 The Transferor and the Remaining Party have
entered into one or more Transactions (each an “Old Transaction”), each evidenced by a Confirmation (an “Old Confirmation”) attached hereto as Exhibit I and subject to a 1992 ISDA Master Agreement dated as of
September 15, 2003 (the “Old Agreement”). 
 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”) relative to the New Transactions (defined below). 
 With effect from and including June 15, 2006 (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 will enter into a new transaction (each a “New Transaction” and, collectively, the “New Transactions”) between them having terms identical to those of each applicable Old Transaction, subject to the same
exceptions and as more particularly described below. 
 The Remaining Party wishes to accept the Transferee as its sole counterparty with respect to each of
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)	on the Novation Date, subject to Section 2(d) of this Novation Agreement, the Transferor hereby transfers all of its rights, liabilities, duties and obligations, with the
exception of the Excluded Rights and Obligations, relative to, and in connection with the Old Transactions to the Transferee. For the sake of clarity, all references to Independent Amounts shall be deemed deleted from the confirmations for each New
Transaction; 

  

	 	(b)	subject to Section 2(d) of this Novation Agreement, the Remaining Party and the Transferor are each hereby 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
such Old Transaction; 

  

	 	(c)	in respect of each New Transaction, the Remaining Party and the Transferee each hereby 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); 

  

	 	(d)	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 

  

	 	(e)	on the Novation Date, the Remaining Party shall transfer any and 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. 

  

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	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. It is acting for its own account, and it 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 

  

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 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; provided, however, that nothing in the foregoing shall be construed to relieve the Transferor from
any liability it may have for any of its representations, warranties or obligations as the servicer or otherwise under the Pooling and Servicing Agreement among NovaStar Mortgage Funding, Inc., U.S. Bank, National Association, and JPMorgan Chase
Bank, National Association dated as of June 1, 2006 (the “Pooling and Servicing Agreement”) 
  

	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 (other
than Section 5-1401 of the New York General Obligations Law). 

  

	 	(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. 

  

	 	  	JPMorgan Chase Bank, National Association is signing this Novation Agreement solely in its capacity as Trustee under the Pooling and Servicing Agreement and not in its individual
capacity, and all persons having any claim against the Trustee by reason of the Transactions contemplated by shall look only to the assets of NovaStar Mortgage Supplemental Interest Trust, Series 2006-2 (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 , provided that in no case shall the Trustee (or any person acting as Successor Trustee under the Pooling and
Servicing Agreement) be liable for or on account of any statements, representations, warranties, covenants or obligations stated to be those of Party B under the terms of the transaction contemplated hereby, all such liability, being expressly
waived by Party A and any other person claiming by, through or under such party. 

  

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 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)	Calculation 

 Not later than each Reset Date, the
Calculation Agent shall deliver in writing to the Trustee the results of any calculations made on such reset date to the Indenture Trustee address as provided in the notices portion of the New Agreement. 
  

	 	(f)	Account Details 

 Remaining Party: 
 Wachovia Bank, N.A. 
 CIB Group, ABA 053000219

 Ref: Derivative Desk (Trade No: [            ]) 
 Account#: 04659360006116 
 Transferee:

 JPMorgan Chase Bank, N.A. 
 ABA # 021000021 
 Acct # 507947541 
 Acct Name SFS-NY Incoming Wire Account 
 Attn Ariella Kaminer 
 Ref Novastar 2006-2, Cap confirm #
[            ] 
  

 5 

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

									
	WACHOVIA BANK, NATIONAL ASSOCIATION	 		 	NOVASTAR CERTIFICATES FINANCING CORPORATION
					
	By:	 	        /s/ Kim V. Farr	 		 	By:	 	        /s/ David L. Farris
		 	Name: Kim V. Farr	 		 		 	Name: David L. Farris
		 	Title:   Director	 		 		 	Title:   Vice President

  

			
	NOVASTAR MORTGAGE SUPPLEMENTAL INTEREST TRUST, SERIES 2006-2
	
	By: JPMorgan Chase Bank, National Association, 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 2006-2
		
	 By:
	 	        /s/ Andrew M. Cooper
		 	Name: Andrew M. Cooper
		 	Title:   Assistant Vice President

  

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 Exhibit I 
 [Old Cap Confirmations attached behind this page] 
  

 7 

 Exhibit II 
 [Form of New Agreement attached behind this page] 
  

 8Master Agreement

 Exhibit 10.5 
 (Multicurrency – Cross Border) 
 ISDA®

 International Swap Dealers Association, Inc. 
 MASTER AGREEMENT 
 dated as of June 15, 2006 
  

					
	 WACHOVIA BANK,
 NATIONAL ASSOCIATION
	  	and	  	 NOVASTAR MORTGAGE SUPPLEMENTAL
 INTEREST TRUST, SERIES 2006-2, a New York common law trust

			
	(“Party A”)	  		  	(“Party B”)

 have entered and/or anticipate entering into one of more transactions (each a “Transaction”) that are or
will be governed by this Master Agreement, which includes the schedule (the “Schedule”), and the documents and other confirming evidence (each a “Confirmation”) exchanged between the parties confirming those Transactions.

 Accordingly, the parties agree as follows: — 
  

	1.	Interpretation 

 (a) Definitions. The terms
defined in Section 14 and in the Schedule will have the meanings therein specified for the purpose of this Master Agreement. 
 (b)
Inconsistency. In the event of any inconsistency between the provisions of the Schedule and the other provisions of this Master Agreement, the Schedule will prevail. In the event of any inconsistency between the provisions of any
Confirmation and this Master Agreement (including the Schedule), such Confirmation will prevail for the purpose of the relevant Transaction. 
 (c)
Single Agreement. All Transactions are entered into in reliance on the fact that this Master Agreement and all Confirmations form a single agreement between the parties (collectively referred to as this “Agreement”), and the
parties would not otherwise enter into any Transactions. 
  

	2.	Obligations 

  

	(a)	General Conditions. 

 (i) Each
party will make each payment or delivery specified in each Confirmation to be made by it, subject to the other provisions of this Agreement. 
 (ii) Payments under this Agreement will be made on the due date for value on that date in the place of the account specified in the relevant Confirmation or otherwise pursuant to this Agreement, in freely transferable funds and in the
manner customary for payments in the required currency. Where settlement is by delivery (that is, other than by payment), such delivery will be made for receipt on the due date in the manner customary for the relevant obligation unless otherwise
specified in the relevant Confirmation or elsewhere in this Agreement. 
 (iii) Each obligation of each party under Section 2(a)(i) is
subject to (1) the condition precedent that no Event of Default or Potential Event of Default with respect to the other party has occurred and is continuing, (2) the condition precedent that no Early Termination Date in respect of the
relevant Transaction has occurred or been effectively designated and (3) each other applicable condition precedent specified in this Agreement. 

 value of that which was (or would have been) required to be delivered as of the originally scheduled date for delivery,
in each case together with (to the extent permitted under applicable law) interest, in the currency of such amounts, from (and including) the date such amounts or obligations were or would have been required to have been paid or performed to (but
excluding) such Early Termination Date, at the Applicable Rate. Such amounts of interest will be calculated on the basis of daily compounding and the actual number of days elapsed. The fair market value of any obligation referred to in clause
(b) above shall be reasonably determined by the party obliged to make the determination under Section 6(e) or, if each party is so obliged, it shall be the average of the Termination Currency Equivalents of the fair market values
reasonably determined by both parties. 
 IN WITNESS WHEREOF the parties have executed this document on the respective dates specified below with effect from
the date specified on the first page of this document. 
  

									
	WACHOVIA BANK, NATIONAL ASSOCIATION	 		 	NOVASTAR MORTGAGE SUPPLEMENTAL INTEREST TRUST, SERIES 2006-2
			
		 		 	By: JPMorgan Chase Bank, National Association, 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 2006-2
					
	 By
	 	/s/ Kim V. Farr	 		 	 By
	 	/s/ Andrew M. Cooper
	Name: Kim V. Farr	 		 	Name: Andrew M. Cooper
	Title:   Director	 		 	Title:   Assistant Vice President
	Date:   June 15, 2006	 		 	Date:   June 15, 2006

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