Novation Holdings Inc. · OTC:NOHO
Novation — Novastar Financial — ABS East Conference 2005
25 slides from Novation's conference presentation, Sep 13, 2005
Slide 1: ABS East Conference
ABS East Conference Boca Raton, Florida September 13-16, 2005
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) $1.1 billion market cap; $580 million of GAAP equity Top 15 residential mortgage ABS issuer Current production run rate of $800-$1000 million per month Cost to originate historically in the 2.25%-2.50% range Servicer rating of “Strong” by S
Slide 4: 6/30/05 YTD Subprime Market Rankings
6/30/05 YTD Subprime Market Rankings (in millions) Originations 1. Ameriquest $45,690 2. New Century $23,695 3. Countrywide $20,256 4. Option One $18,220 5. WAMU $17,125 6. Fremont $17,000 7. Wells Fargo $14,449 8. WMC $14,272 9. First Franklin $13,564 10. HSBC $10,434 11. GMAC-RFC $8,110 Source: In
Slide 5: NovaStar Organizational Structure
NovaStar Organizational Structure
Slide 6: NovaStar Operating Strategy
NovaStar Operating Strategy Originate high margin, non-conforming residential mortgages Service our own collateral (no third party servicing) Use technology to be an efficient originator and servicer Create mortgage securities with good risk-adjusted returns from our loans through securitization Use
Slide 7: Origination Strategy
Origination Strategy Primarily an A- wholesale lender Vertical integration Originator and end investor Whole loan portfolio exceeding $13.3 billion Centralized origination operation Strive to be a low cost producer - cost to originate ~ 2.25% Better risk controls - over 40% appraisal reviews Manage
Slide 8: Distribution Channels
Distribution Channels Wholesale Production centers located in Cleveland, OH; Lake Forest, CA and Troy, MI 376 person inside & outside sales force located in 40 states call on a customer base of over 21,000 independent retail brokers Compete on service, primarily a price taker Correspondent Sales for
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 106 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 2005YTD* Channel Actual Actual Actual Actual Independent Brokers 79% 67% 65% 77% Retail 19% 28% 25% 16% Correspondent 2% 5% 10% 7% Total Nonconforming Production $2.50B $5.25B $8.42B $5.19B * Thru July 31, 2005
Slide 11: Securitization History
Securitization History 2002 2003 2004 2005YTD* Actual Actual Actual Actual Production $2.50B $5.25B $8.42B $5.19B Underlying Deals 3 4 4 3 Resecuritizations 1 1 3 1 * Includes 2005-3
Slide 12: Non-Conforming Production
Non-Conforming Production $0 $500 $1,000 $1,500 $2,000 $2,500 Quarter 0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% 3.50% 4.00% 4.50% 5.00% Principal Originated Cost to Originate
Slide 13: NovaStar Operations
NovaStar Operations Troy, MI Wholesale - Central Independence, OH Wholesale - East Columbia, MD Retail - East Lake Forest, CA Wholesale - West Kansas City, MO Corporate Headquarters Servicing Correspondent Retail - Central
Slide 14: 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 10% random review of all files within 30
Slide 15: 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 and/or NIM exe
Slide 16: Servicing Overview
Servicing Overview $13.3 billion portfolio representing 95,000 accounts 19 th largest sub-prime servicer (as of 6/30/04; Source: National Mortgage News) Total staff of 264 16 years average experience among Management/Supervisors Approved FHA, VA, Fannie Mae and Freddie Mac seller/servicer Rated by a
Slide 17: Servicing
Servicing $0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 Quarter 0.00% 0.10% 0.20% 0.30% 0.40% 0.50% Principal Serviced Cost to Service
Slide 18: Summary of 6/30/2005 YTD Results
Summary of 6/30/2005 YTD Results GAAP earnings of $71.3 million; $2.49 / share $2.80 dividend / share $4.30 billion in non-conforming production Servicing portfolio grew to $13.3 billion $343 million of cash and available liquidity Completed two whole loan Sr./Sub securitizations backed by $3.9 bill
Slide 19: Collateral Performance Pre-Mortgage Insurance
Collateral Performance Pre-Mortgage Insurance (All data as of August 31, 2005 unless stated otherwise)
Slide 20: 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 21: Actual Loss Severity
Actual Loss Severity Production Principal Average Loss Year Loans Liquidated Balance Severity 1997-1998 1,987 $198,801,415 $100,051 42.4% 2000 525 $59,955,413 $114,201 34.8% 2001 691 $81,875,274 $118,488 34.3% 2002 397 $57,644,268 $145,200 28.2% 2003 164 $23,235,654 $141,681 26.1% 2004 20 $3,171,001
Slide 22: Frequency (90+ including REO and Liquidated Loans) by Origination Year
Frequency (90+ including REO and Liquidated Loans) by Origination Year (Based on Original Balance) —— 1897 Production 21098 Production [7 e200 Production + 2001 Production 2002 Production — 2003 Production + 2004 Production Age NOVASTAR
Slide 23: Static Loss by Origination Year
Percent 1987 Production Static Loss by Origination Year (Based on Original Balance) = 1998 Production +2000 Production +2001 Production —2002 Production —2008 Production 2004 Production a 6 ° 12-18 te 21 24 27 90 99 38 9 2 45 4 OF Age 54 87 0 62 68 69 72 76 78 81 G4 87 G0 09 06
Slide 24: Early Performance Indicators
Early Performance Indicators MB S method OTS method Early First Payment First Payment Payment Default 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 1.57% 0.55% 3.35% 2000-2004 1.22% 0.47% 3.01% *Early pa
Slide 25: Additional Data
Additional Data Complete production and performance data can be found on NovaStar’s website: Monthly Production Reports Bond Investor Reports Bond Remittance Statements Mortgage Insurance Claim Statistics http://www.novastarmortgage.com/corporate/