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Novastar Financial, Inc (NFI)

NFI 2006 2 Bond...

NFI 2006 2 Bond deal - from NFI mb

mhatmccane

409 posts

Joined
1/20/2006

NFI 2006 2 Bond deal - from NFI mb
Posted: 19 Jun 06 8:34 AM

The NFI 2006-2 bond deal, part 1.......
by: kauaigary1 (56/M/Golden, Colorado)

06/19/06 09:58 am
Msg: 439479 of 439517

I've not been around much for awhile but I maintain a decent long position in the company. To ensure that the business remains properly managed, I routinely look at the securitization prospectus filings on EDGAR known as form 424B5s. The total amount of this latest securitization deal was roughly $1.020 Billion, split into two groupings. I've culled out some characteristics of both groups of loans to get a flavor of the continued quality of the underwriting.

Here are some tidbits from the EDGAR filing for those of you still interested in NFI. You can look at the prospectus yourself at this link:

http://www.sec.gov/Archives/edgar/data/1052549/000119312506129827/d424b5.htm

The Mortgage Loans have the following approximate characteristics as of the cut-off date:

Adjustable-rate Group I Loans: 82.70%
Adjustable-rate Group II Loans: 83.74%

Fixed-rate Group I Loans: 17.30%
Fixed-rate Group II Loans: 16.26%

Interest-only Group I Loans: 14.32%
Interest-only Group II Loans: 20.09%

Second lien Group I Loans: 2.21%
Second lien Group II Loans: 4.05%

Weighted average mortgage rate: 8.79%

Weighted average gross margin of the adjustable-rate Group I Loans: 5.7%

Range of Group l principal balances as of the cut-off date: $14,996 to $542,829

Range of Group ll principal balances as of the cut-off date: $11,237 to $1,348,298

Average Group l principal balance as of the cut-off date: $157,377

Average Group ll principal balance as of the cut-off date: $183,395

Weighted average original loan-to-value ratio (the loan to value ratio for any second lien mortgage is the combined loan to value ratio for both mortgages in this data): 81.25%

In summary:

NFI's loan pool is once again 80+% ARMs, 97% first mortgages, 3% second mortgages with ave combined LTV of 81.25% made to individuals with an average FICO of 623. The average loan amount is $170K leading to an inferred average property value backing the loans, of $200K. All these factors are consistent with NFI practice of the past and indicate to me that compromises in underwriting are not being generally made in order to maintain loan production volumes.

The only statistic from the loan pools that I raise my eyebrows at a bit is the concentration of loans in Florida and California. My preference would be to see a modestly lower number of loans in these admittedly large markets. The latest pool contains loans on properties in 49 states (only Alaska is missing). Here's the data for the high concentration states:

Geographic concentrations in excess of 5%: FL 22%, CA 16%, MD 6.5%.

Continued..........

mhatmccane

409 posts

Joined
1/20/2006

Re: NFI 2006 2 Bond deal - from NFI mb
Posted: 19 Jun 06 8:38 AM

The NFI 2006-2 bond deal part 2
by: kauaigary1 (56/M/Golden, Colorado)

06/19/06 09:58 am
Msg: 439480 of 439518

Other data bits that are encouraging:
-93% are owner occupied housing,
- 4% are investment properties
- 3% are second homes

-74% individual homes
- 6% condos
- 7% multi-units
-13% PUD

In other words, the properties backing these loans are concentrated in the grouping of properties that have been less prone, overall, to get speculative fever (single family, owner occupied).

Cash out refis: 59% with ave LTV of 79%
New Purchases: 38% with ave LTV of 85%

Documentation:

-44% full loan documentation, 44% stated income, 10% no documentation, 2% limited documentation.

Underwriting standards appear on pages s74 thru s78 and are interesting if you've never looked at them.

Historical delinquency and loss data is provided on page s84. Currently, 1.26% of the outstanding portfolio balance of $14 Billion is in foreclosure. This is an amount of $178 Million.

Information on swaps and caps can be found on page s94. Swap rates range from 4.755 to 5.25%.

Conclusion:

I'm satisfied that NFI remains a solid income producing stock that is likely to perform well based on its continuing strong loan and bond creation practices. This is a well managed sub-prime sector MREIT, the best that I've ever run across, and it continues to warrant a place in our family portfolio. Stock price volatility can be expected until insecurity regarding the direction of interest rates is removed from the market.

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Specific Stocks

Novastar Financial, Inc (NFI)

NFI 2006 2 Bond...