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Tag Archives: NovaStar Financial

In Other Election News… it looks like Overstock won’t be relocating to South Dakota after all.  I’m not sure if that’s good news or bad for Utahans.

A big part, probably the biggest, of what turned the 2008 election in the US was basically the same thing that gave the US its previous Democrat president in 1992; in the words of that campaign, “It’s the Economy, Stupid”.

And two of the biggest factor in that were the ballooning of oil and fuel prices (which seems to have passed almost as inexplicably as it occurred; I had the pleasure of filling up for $1.99 a gallon on Election Day), and what they call the “mortgage meltdown”, and the turmoil that’s wrought in the financial sector.

And that brings us to an obscure player in the mortgage boom and bust of the 2000’s, a little Kansas City company called NovaStar Financial.  It first came into the spotlight, as Mitchell states, in April 2004, though Mitchell seems totally baffled as to exactly why.  In fact, the trigger seems to have been issues involving NovaStar obtaining proper licensing in several states, which led to an informal SEC inquiry.  Despite what you may have heard about the mortgage industry being an unregulated free-for-all back then, in fact these regulatory issues had significant consequences for NovaStar, in that their insurer, PMI, was refusing to pay claims on defaulted mortgages that didn’t have all the regulatory hoops jumped through cleanly.

This led to a lawsuit against PMI later in 2004 which was settled in 2005, but apparently NovaStar was by no means unique when it came to mortgage lenders that cut corner, but merely in the one that came out and publicly blamed their problems on outside forces.

In a way, it was the first sign of trouble ahead for the subprime mortgage industry, an augur of things that would prove world-shaping before they were done.

Or, you can ignore all that as Mitchell does and lay it out this way: Rocker was shorting NovaStar in 2003 and their lapdog Herb Greenberg got his lapdogs in the SEC to stir up trouble for NovaStar and take down their stock.

Mitchell has a strong tendency to avoid making concrete statements of fact throughout Deep Capture, but apparently it wasn’t completely out of excessive carefulness, because now he lays down the whopper that “NovaStar continued to report strong profits well into 2007”.  Unless you take that to mean “for nearly two months into 2007, NovaStar was considered by most to be strongly profitable”, that’s quite simply not true, as many on Wall Street were shocked by an unexpected loss in NovaStar’s 4th quarter results for 2006.  This in fact was the beginning of what would prove a very swift end for NovaStar, as in short order the giant dividend which had attracted investors was no more, and in August 2007 they abruptly stopped accepting new business and divested existing business elsewhere.

Of course, Mitchell once again ignores all that, deciding shares of stock not being delivered was far more important than mortgage payments not being delivered.  He does concede, in one of his rare moments of understatement, that subprime mortgages had become “risky business” at the time Deep Capture was published, and does offhandedly refer to NovaStar’s final demise by way of whining about Herb Greenberg gloating over it.

And in all of this we haven’t even touched on the “nfi-info” website (which no longer exists; the link is to the Wayback Machine archive of it) that was run by none other than the Easter Bunny himself, and had been dedicated to the greatness that was NovaStar and the travesty that it was finding itself under attack.  And of course all those stock delivery failures, which, despite what Mitchell might want you to believe, had absolutely nothing to do the collapse of the company.

Next week, another victim steps forward.  At least this one isn’t totally dead yet, though it’s made some very adverse headlines of late.