Novation Holdings Inc. · OTC:NOHO
Novation — Novastar Financial — American Securitization Forum 2006
24 slides from Novation's conference presentation, Jan 30, 2006
Slide 1: American Securitization Forum, Las Vegas, January 29 – February 1, 2006
American Securitization Forum Las Vegas, Nevada January 29 – February 1, 2006
Slide 2: Forward looking disclosure
Forward looking disclosure Certain matters discussed in this presentation may constitute forward-looking statements within the meaning of the federal securities laws that inherently include certain risks and uncertainties. Actual results and the timing of certain events could differ materially from
Slide 3: Overview
Overview Founded: June, 1996 IPO: October, 1997 (NYSE: NFI) $1.0 billion market cap; $564 million of GAAP equity Top 20 residential mortgage ABS issuer Current production run rate of $700-$900 million per month Cost to originate historically in the 2.00%-2.50% range Servicer rating of “Strong” by S&
Slide 4: 9/30/2005 Subprime Market Rankings
9/30/2005 Subprime Market Rankings (in millions) 1 Ameriquest $63,670 1 Ameriquest $40,181 2 New Century $39,553 2 New Century $27,556 3 Countrywide $32,457 3 Lehman Bros $27,306 4 Option One $30,190 4 Countrywide $25,351 5 Fremont $26,616 5 Option One $18,350 6 WAMU $26,314 6 Bear Stearns $15,421 7
Slide 5: NovaStar Organizational Structure
NovaStar Organizational Structure NovaStar Financial, Inc. (NFI) REIT NFI Holding Corp. Taxable REIT Subsidiary NovaStar Mortgage, Inc. (NMI) NovaStar Capital, Inc. (NCI) Mortgage Banking Servicing Warehouse Lending
Slide 6: NovaStar Operating Strategy
NovaStar Operating Strategy NovaStar is structured as a REIT Parent company does not pay corporate taxes Focus is on being a portfolio investor vs. pure mortgage banking Originate high margin, non-conforming residential mortgages Service our own collateral (no third party servicing) Use technology t
Slide 7: Origination Strategy
Origination Strategy Primarily an A- wholesale lender Vertical integration Originator and end investor Whole loan portfolio exceeding $14 billion Centralized origination operation Strive to be a low cost producer - cost to originate 2.00%-2.25% Better risk controls - over 40% appraisal reviews Manag
Slide 8: Distribution Channels
Distribution Channels Wholesale Production centers located in Cleveland, OH and Lake Forest, CA 400 person inside & outside sales force located in 40 states call on a customer base of over 16,400 independent retail brokers Compete on service, primarily a price taker Correspondent Sales force dedicat
Slide 9: Distribution Channels - Continued
Distribution Channels - Continued Retail Offices located in Columbia, MD and Kansas City, MO focusing primarily on retention of existing portfolio Total of 104 loan officers Secondary focus on new business using primarily purchased leads Also maintain a chain local branch in a few select markets Cur
Slide 10: Production Mix by Channel
Production Mix by Channel 2002 2003 2004 2005 Channel Actual Actual Actual Actual Independent Brokers 79% 67% 65% 75% Retail 19% 28% 25% 16% Correspondent 2% 5% 10% 9% Total Nonconforming Production $2.50 B $5.25 B $8.42 B $9.28 B
Slide 11: Securitization History
Securitization History 2002 2003 2004 2005 Actual Actual Actual Actual Production $2.50 B $5.25 B $8.42 B $9.28 B Underlying Deals 3 4 4 4 Resecuritizations 1 1 3 1
Slide 12: Non-Conforming Production
Non-Conforming Production $0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 Quarter 0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% 3.50% 4.00% Principal Originated Cost to Originate
Slide 13: NovaStar Origination Practices
NovaStar Origination Practices 100% Pre-funding Audit (100% DISSCO / 40% full QC audit) Quality/Fraud procedures for new and existing brokers Watch list / Do not take list for 3 rd party vendors Quality Control - Identifies negative trends / provides feedback 5%-10% random review of all files within
Slide 14: Risks and Risk Management
Risks and Risk Management Interest rate/prepayment Hedging - match duration using swaps and caps Prepayment/convexity - prepayment penalties Portfolio is hedged within maximum exposure of 10% of equity up/down 100 bps Credit Geographic diversification Lender paid deep MI to 50-55% LTV Common sense U
Slide 15: Servicing Overview
Servicing Overview $14 billion portfolio representing 99,000 accounts 17 th largest sub-prime servicer (as of 6/30/05; Source: Mortgage Servicing News) Total staff of 260 17 years average experience among Management/Supervisors Approved FHA, VA, Fannie Mae and Freddie Mac seller/servicer Rated by al
Slide 16: Servicing
Servicing $0 $2,500 $5,000 $7,500 $10,000 $12,500 $15,000 Quarter 0.00% 0.10% 0.20% 0.30% 0.40% 0.50% Principal Serviced Cost to Service
Slide 17: Summary of 9/30/2005 YTD Results
Summary of 9/30/2005 YTD Results GAAP earnings of $106 million; $3.64 / share $4.20 dividend / share (common) $264 million of cash and available liquidity Completed three whole loan Sr./Sub securitizations and one NIM resecuritization backed by $6.5 billion of collateral
Slide 18: Collateral Performance Pre-Mortgage Insurance
Collateral Performance Pre-Mortgage Insurance (All data as of December 31, 2005 unless stated otherwise)
Slide 19: Production Summary
Production Summary Year Average Balance WAC LTV CLTV FICO PPP (% with) PPP Years ARM NON-FULL DOC NOO CASH OUT 1997-98 $104,540 10.04% 79.6% 81.3% 70% 2.2 68% 35.1% 5.9% 52.8% $100,837 9.90% 81.6% 82.9% 90% 3.2 64% 39.8% 7.7% 49.5% $116,009 10.55% 82.5% 84.9% 90% 2.9 77% 41.4% 6.1% 42.9% $128,925 9.
Slide 20: Actual Loss Severity
Actual Loss Severity Production Principal Average Loss Year Loans Liquidated Balance Severity 1997-1998 2,045 $203,728,981 $99,623 42.2% 2000 569 $64,006,314 $112,489 35.4% 2001 848 $99,288,932 $117,086 34.9% 2002 657 $90,228,821 $137,335 30.9% 2003 509 $66,971,806 $131,575 29.0% 2004 429 $61,033,21
Slide 21: Frequency (90+, REO and Liquidated Loans) by Origination Year
Frequency (90+ g REO and (Based on 01 Percent iquidated Loans) by 0 nal Balance) ation Year = 1067 Production = 1908 Production “= 2000 Production = 2001 Preduction 2002 Production — 2008 Preduction 2004 Production NOvaSTAR
Slide 22: Static Loss by Origination Year
Static Loss by 01 (Based on Original Balance) Tie Production ® = 1908 Production = 2000 Production enero s “2001 Production poses! 2002 Production 2003 Production 2004 Production NOvaSTAR
Slide 23: Early Performance Indicators
Early Performance Indicators MBA method OTS method Early Payment First Payment Default First Payment Default Default* 1997-1998 4.67% 2.05% 9.20% 2000 1.65% 0.80% 5.61% 2001 1.33% 0.66% 5.02% 2002 1.05% 0.45% 2.77% 2003 0.67% 0.25% 1.79% 2004 1.49% 0.54% 3.27% 2005 1.44% 0.49% 1.92% 2000-2005 1.26%
Slide 24: Additional Data
Additional Data Complete production and performance data can be found on NovaStar’s websites: Static pool data Offering documents Bond remittance statements Monthly production reports Mortgage insurance claim statistics http://www.novastarbondinvestors.com/ http://www.novastarmortgage.com/corporate/
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