GUARANTY

     THIS GUARANTY, dated as of May 31, 2007, (this "Guaranty"),  is made by and
among NovaStar Financial,  Inc. ("NFI"), NFI Holding Corporation  ("NFIHC") (NFI
and  NFIHC,  each  a  "Guarantor"  and  together,  jointly  and  severally,  the
"Guarantors") and Wachovia Bank, N.A.(the "Buyer",  which term shall include any
buyer for whom  Buyer acts as Agent as defined  and  provided  for in the Master
Repurchase Agreement referred to below);

                                    RECITALS

     A.  Pursuant to the Master  Repurchase  Agreement  (2007  Investment  Grade
Securities),  dated as of May 31, 2007 (as  amended,  supplemented  or otherwise
modified from time to time,  the "Master  Repurchase  Agreement"),  by and among
NovaStar Mortgage,  Inc. ("NMI"), as a seller,  NovaStar Certificates  Financing
LLC  ("NCFLLC"),  as a seller and NovaStar  Certificates  Financing  Corporation
("NCFC"),  as a seller  (NMI,  NCFLLC and NCFC,  each a Seller and  jointly  and
severally,  collectively the "Sellers"), the Guarantors and the Buyer, the Buyer
has agreed to purchase certain assets (the "Purchased  Assets") from the Sellers
and the Sellers have agreed to repurchase such Assets upon the terms and subject
to the conditions set forth therein.

     B. It is a condition  precedent to the  obligation of the Buyer to purchase
the Purchased Assets from the Sellers under the Master Repurchase Agreement that
the Guarantors shall have executed and delivered this Guaranty to the Buyer.

     NOW, THEREFORE,  for good and valuable  consideration,  receipt of which by
the parties  hereto is hereby  acknowledged,  the parties hereto hereby agree as
follows:

     1. Defined Terms. (a) Unless otherwise defined herein, terms defined in the
Master  Repurchase  Agreement  and used herein shall have the meanings  given to
them in the Master Repurchase Agreement.

     (b) "Obligations" shall mean the obligations and liabilities of the Sellers
and the Guarantors to the Buyer, including,  without limitation, the obligations
whether direct or indirect, absolute or contingent, due or to become due, or now
existing  or  hereafter  incurred,  which  may  arise  under,  or  out  of or in
connection  with the  Master  Repurchase  Agreement,  this  Guaranty,  any other
Program Documents and any other document made,  delivered or given in connection
therewith  or  herewith,  whether on account of  covenants,  Repurchase  Prices,
reimbursement  obligations,  fees,  indemnities,   costs,  expenses  (including,
without limitation,  all fees and disbursements of counsel to the Buyer that are
required  to be  paid  by the  Sellers  pursuant  to the  terms  of the  Program
Documents) or otherwise.

     (c) The words  "hereof,"  "herein"  and  "hereunder"  and words of  similar
import when used in this  Guaranty  shall refer to this  Guaranty as a whole and
not to any  particular  provision of this  Guaranty,  and section and  paragraph
references are to this Guaranty unless otherwise specified.

     (d) The meanings given to terms defined herein shall be equally  applicable
to both the singular and plural forms of such terms.

     2. Guaranty.  (a) The Guarantors hereby,  unconditionally  and irrevocably,
guarantee to the Buyer and its  successors,  indorsees,  transferees and assigns
the prompt and complete payment and performance by the Sellers when due (whether
at the stated maturity, by acceleration or otherwise) of the Obligations.

     (b) The  Guarantors  further agree to pay any and all expenses  (including,
without limitation,  all reasonable fees and disbursements of counsel) which may
be paid or incurred  by the Buyer in  enforcing  any rights with  respect to, or
collecting,  any or all of the  Obligations  and/or  enforcing  any rights  with
respect to, or collecting  against,  the Guarantors  under this  Guaranty.  This
Guaranty shall remain in full force and effect until the Obligations are paid in
full,  notwithstanding  that from time to time prior  thereto any or all Sellers
may be free from any Obligations.

     (c) No payment or payments made by the Sellers,  the Guarantors,  any other
guarantor  or any other  Person or received or  collected  by the Buyer from the
Sellers,  the  Guarantors,  any other guarantor or any other Person by virtue of
any action or proceeding or any set-off or  appropriation  or application at any
time or from time to time in reduction of or in payment of the Obligations shall
be deemed to modify,  reduce,  release or otherwise  affect the liability of the
Guarantors  hereunder which shall,  notwithstanding any such payment or payments
other than payments  made by the  Guarantors  in respect of the  Obligations  or
payments   received  or  collected   from  the  Guarantors  in  respect  of  the
Obligations, remain liable for the Obligations until the Obligations are paid in
full and the Master Repurchase Agreement is terminated.

     (d) Each Guarantor agrees that whenever, at any time, or from time to time,
it shall make any payment to the Buyer on account of its liability hereunder, it
will notify the Buyer in writing that such  payment is made under this  Guaranty
for such purpose.

     (e) Each  Guarantor  shall be jointly and  severally  liable with the other
Guarantors to the Buyer for all obligations of the Guarantors hereunder.

     3. Representations and Warranties of the Guarantors.  Each Guarantor hereby
represents and warrants that:

     (a) It is duly  organized and validly  existing in good standing  under the
laws of the jurisdiction under which it is organized and is duly qualified to do
business  and is in good  standing in every other  jurisdiction  as to which the
nature of the business conducted by it makes such qualification necessary.

     (b) It has the full power,  authority  and legal right to execute,  deliver
and perform its  obligations  under this  Guaranty.  This Guaranty has been duly
executed and delivered by it, has not been amended or otherwise modified,  is in
full force and effect and is the legal,  valid and  binding  obligation  of each
Guarantor, enforceable against it in accordance with its terms, except as may be
limited by bankruptcy, insolvency,  reorganization,  moratorium or other similar
laws  relating to or  affecting  the rights of  creditors  generally  and to the
application of general principles of equity (regardless of whether considered in
a proceeding in equity or at law).


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     (c)  Neither  the   execution   and  delivery  of  this  Guaranty  nor  the
consummation  of the  transactions  contemplated  herein will  conflict  with or
result in a breach of, or require  any  consent  under,  any  applicable  law or
regulation,   or  any  order,  writ,  injunction  or  decree  of  any  court  or
governmental  authority or agency,  or any agreement or instrument to which each
Guarantor  is a party or by which each  Guarantor or its property is bound or to
which  each  Guarantor  is  subject,  or  constitute  a  default  under any such
agreement  or  instrument,  or (except for the liens  created  pursuant  hereto)
result  in the  creation  or  imposition  of any  lien or  encumbrance  upon the
Guarantors'  revenues or assets  pursuant to the terms of any such  agreement or
instrument.

     (d)  Each  Guarantor  has  received  and  reviewed  copies  of  the  Master
Repurchase Agreement.

     (e) This  Guaranty  is the  legal,  valid and  binding  obligation  of each
Guarantor,  enforceable  against each  Guarantor,  in accordance with its terms,
subject to bankruptcy,  insolvency and similar laws and to the  availability  of
equitable remedies.

     (f) There is no action, suit or proceeding at law or in equity by or before
any governmental  authority,  arbitral tribunal or other body now pending, or to
the best of each  Guarantor's  knowledge,  threatened  against or affecting each
Guarantor or any of its property  that is  reasonably  likely to have a material
adverse effect on each Guarantor's condition, financial or otherwise.

     (g)  No  authorizations,  approvals  or  consents  of,  and no  filings  or
registrations with, any governmental  authority are necessary for the execution,
delivery or performance by the Guarantors of this Guaranty.

     4. Right of  Set-off.  Upon the  occurrence  of any Event of  Default,  the
Guarantors  hereby  irrevocably  authorize the Buyer or any of its Affiliates at
any time and from time to time without notice to the Guarantors, any such notice
being expressly  waived by the Guarantors,  to set-off and appropriate and apply
any and all deposits (general or special, time or demand, provisional or final),
in any currency, and any other credits, indebtedness or claims, in any currency,
in each case whether  direct or  indirect,  absolute or  contingent,  matured or
unmatured, at any time held or owing by the Buyer or any of its Affiliates to or
for the credit or the  account of the  Guarantors,  or any part  thereof in such
amounts as the Buyer may elect,  against and on account of the  obligations  and
liabilities of the Guarantors to the Buyer  hereunder and claims of every nature
and description of the Buyer or any of its Affiliates against the Guarantors, in
any currency,  whether arising hereunder,  under the Master Repurchase Agreement
as the Buyer may elect, whether or not the Buyer has made any demand for payment
and although  such  obligations,  liabilities  and claims may be  contingent  or
unmatured.  The Buyer shall notify the  Guarantors  promptly of any such set-off
and the  application  made by the Buyer,  provided that the failure to give such
notice shall not affect the validity of such set-off and application. The rights
of the Buyer and its  Affiliates  under this  Section  are in  addition to other
rights and  remedies  (including  without  limitation,  other rights of set-off)
which the Buyer and its Affiliates may have.

     5. No  Subrogation.  Notwithstanding  any payment or  payments  made by the
Guarantors hereunder or any set-off or application of funds of the Guarantors by
the Buyer or


                                       3

any of its Affiliates,  the Guarantors shall not be entitled to be subrogated to
any of the rights of the Buyer against any Seller or any other  guarantor or any
collateral  security or  guarantee  or right of offset held by the Buyer for the
payment of the Obligations, nor shall the Guarantors seek or be entitled to seek
any  contribution  or  reimbursement  from any Seller or any other  guarantor in
respect of payments made by the Guarantors hereunder, until all amounts owing to
the Buyer by the Sellers on account of the  Obligations are paid in full and the
Master  Repurchase  Agreement is terminated.  If any amount shall be paid to the
Guarantors  on  account of such  subrogation  rights at any time when all of the
Obligations  shall not have been paid in full,  such amount shall be held by the
Guarantors  in  trust  for  the  Buyer,  segregated  from  other  funds  of each
Guarantor,  and shall, forthwith upon receipt by the Guarantors,  be turned over
to the Buyer in the exact form received by the Guarantors  (duly indorsed by the
Guarantors to the Buyer, if required),  to be applied  against the  Obligations,
whether matured or unmatured, in such order as the Buyer may determine.

     6. Amendments,  Etc. with Respect to the Obligations.  The Guarantors shall
remain  obligated  hereunder  notwithstanding  that,  without any reservation of
rights  against the  Guarantors  and without  notice to or further assent by the
Guarantors,  any demand for payment of any of the Obligations  made by the Buyer
may be  rescinded  by the Buyer and any of the  Obligations  continued,  and the
Obligations,  or the  liability of any other party upon or for any part thereof,
or any collateral security or guarantee therefor or right of offset with respect
thereto,  may,  from time to time,  in whole or in part,  be renewed,  extended,
amended, modified, accelerated,  compromised, waived, surrendered or released by
the Buyer, and the Master Repurchase  Agreement and any other documents executed
and delivered in connection therewith may be amended, modified,  supplemented or
terminated,  in whole or in part, as the Buyer may deem  advisable  from time to
time, and any collateral security, guarantee or right of offset at any time held
by the Buyer for the payment of the Obligations may be sold, exchanged,  waived,
surrendered  or released.  The Buyer shall not have any  obligation  to protect,
secure,  perfect or insure any lien at any time held by it as  security  for the
Obligations or for this Guaranty or any property  subject  thereto.  When making
any demand hereunder against any Guarantor, the Buyer may, but shall be under no
obligation to, make a similar demand on the Sellers or the other Guarantors, and
any failure by the Buyer to make any such demand or to collect any payments from
the Sellers or the other  Guarantors or any release of the Sellers or such other
Guarantors shall not relieve the Guarantors of their  obligations or liabilities
hereunder,  and shall not impair or affect the rights and  remedies,  express or
implied,  or as a matter of law, of the Buyer  against the  Guarantors.  For the
purposes hereof "demand" shall include the  commencement  and continuance of any
legal proceedings.

     7.  Waiver  of  Rights.  The  Guarantors  waive  any and all  notice of the
creation, renewal, extension or accrual of any of the Obligations, and notice of
or proof of  reliance  by the Buyer upon this  Guaranty  or  acceptance  of this
Guaranty; the Obligations, and any of them, shall conclusively be deemed to have
been created,  contracted or incurred, or renewed,  extended, amended or waived,
in reliance  upon this  Guaranty;  and all dealings  between the Sellers and the
Guarantors, on the one hand, and the Buyer, on the other hand, likewise shall be
conclusively  presumed to have been had or  consummated  in  reliance  upon this
Guaranty.  The Guarantors  waive  diligence,  presentment,  protest,  demand for
payment  and  notice of  default  or  nonpayment  to or upon the  Sellers or the
Guarantors with respect to the Obligations.


                                       4

     8. Guaranty Absolute and Unconditional. The Guarantors understand and agree
that  this  Guaranty   shall  be  construed  as  a   continuing,   absolute  and
unconditional  guarantee of the full and punctual payment and performance by the
Sellers of the  Obligations and not of their  collectibility  only, and is in no
way conditioned upon any requirement that the Buyer first attempt to collect any
of the  obligations  from  the  Sellers,  without  regard  to (a) the  validity,
regularity or  enforceability  of the Master  Repurchase  Agreement,  any of the
Obligations or any other collateral  security  therefor or guarantee or right of
offset with  respect  thereto at any time or from time to time held by the Buyer
(b) any  defense,  set-off or  counterclaim  (other than a defense of payment or
performance)  which may at any time be  available  to or be asserted by a Seller
against the Buyer,  or (c) any other  circumstance  whatsoever  (with or without
notice to or knowledge of the Sellers or the Guarantors) which  constitutes,  or
might be construed to  constitute,  an equitable or legal  discharge of a Seller
from the Obligations,  or of the Guarantors from this Guaranty, in bankruptcy or
in any other instance.  When pursuing its rights and remedies  hereunder against
the Guarantors,  the Buyer may, but shall be under no obligation to, pursue such
rights and  remedies as it may have  against a Seller or any other Person or any
collateral security or guarantee for the Obligations or any right of offset with
respect  thereto,  and any failure by the Buyer to pursue  such other  rights or
remedies or to collect any payments from a Seller or any such other Person or to
realize upon any such  collateral  security or guarantee or to exercise any such
right of offset, or any release of a Seller or any such other Person or any such
collateral  security,  guarantee  or right of  offset,  shall  not  relieve  the
Guarantors of any liability hereunder, and shall not impair or affect the rights
and remedies,  whether express,  implied or available as a matter of law, of the
Buyer  against the  Guarantors.  This  Guaranty  shall  remain in full force and
effect and be binding in accordance with and to the extent of its terms upon the
Guarantors  and the  successors  and  assigns  thereof,  and shall  inure to the
benefit of the Buyer,  and its successors,  indorsees,  transferees and assigns,
until all the  Obligations  and the  obligations  of the  Guarantors  under this
Guaranty shall have been satisfied by payment in full and the Master  Repurchase
Agreement shall be terminated, notwithstanding that from time to time during the
term of the  Master  Repurchase  Agreement  the  Sellers  may be free  from  any
Obligations.

     9.  Reinstatement.  This Guaranty  shall  continue to be  effective,  or be
reinstated,  as the case may be, if at any time payment, or any part thereof, of
any of the Obligations is rescinded or must otherwise be restored or returned by
the  Buyer  upon  the  insolvency,  bankruptcy,   dissolution,   liquidation  or
reorganization of any Seller or any of the Guarantors, or upon or as a result of
the  appointment  of a receiver,  intervenor  or  conservator  of, or trustee or
similar officer for, any Seller or any of the Guarantors or any substantial part
of its property, or otherwise, all as though such payments had not been made.

     10. Payments.  The Guarantors hereby guarantee that payments hereunder will
be paid to the  Buyer  without  set-off  or  counterclaim  in  U.S.  Dollars  in
accordance with the wiring instructions of the Buyer.

     11. Notices. All notices,  requests and other  communications  provided for
herein (including without limitation any modifications of, or waivers,  requests
or consents under,  this Guaranty) shall be given or made in writing  (including
without limitation by telex or telecopy) and delivered to the intended recipient
at the "Address for Notices"  specified on the signature page hereto;  or, as to
any party,  at such  other  address  as shall be  designated  by such party in a
written notice to each other party. All such  communications  shall be deemed to
have

been duly given when  transmitted  by telex or telecopy or personally  delivered
or,  in the  case of a  mailed  notice,  upon  receipt,  in each  case  given or
addressed as aforesaid.

     12.  Severability.  Any provision of this  Guaranty  which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability  without  invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render  unenforceable such provision in any
other jurisdiction.

     13.  Integration.  This  Guaranty and the Program  Documents  represent the
agreement  of the  Guarantors  with  respect to the  subject  matter  hereof and
thereof and there are no promises or  representations  by the Buyer  relative to
the subject matter hereof or thereof not reflected herein or therein.

     14. Amendments in Writing; No Waiver;  Cumulative Remedies. (a) None of the
terms or  provisions of this Guaranty may be waived,  amended,  supplemented  or
otherwise modified except by a written instrument executed by the Guarantors and
the Buyer,  provided  that any  provision of this  Guaranty may be waived by the
Buyer.

     (b) The Buyer shall not by any act (except by a written instrument pursuant
to Section 14(a) hereof), delay, indulgence,  omission or otherwise be deemed to
have waived any right or remedy  hereunder or to have  acquiesced in any Default
or Event of Default or in any breach of any of the terms and conditions  hereof.
No failure to exercise,  nor any delay in exercising,  on the part of the Buyer,
any right,  power or privilege  hereunder shall operate as a waiver thereof.  No
single or partial  exercise of any right,  power or  privilege  hereunder  shall
preclude  any other or further  exercise  thereof or the  exercise  of any other
right,  power  or  privilege.  A waiver  by the  Buyer  of any  right or  remedy
hereunder  on any one  occasion  shall not be construed as a bar to any right or
remedy which the Buyer would otherwise have on any future occasion.

     (c)  The  rights  and  remedies  herein  provided  are  cumulative,  may be
exercised  singly or  concurrently  and are not exclusive of any other rights or
remedies provided by law.

     15. Section  Headings.  The section  headings used in this Guaranty are for
convenience of reference only and are not to affect the  construction  hereof or
be taken into consideration in the interpretation hereof.

     16.  Successors  and  Assigns.  This  Guaranty  shall be  binding  upon the
successors  and assigns of the  Guarantors and shall inure to the benefit of the
Buyer and its successors  and assigns.  This Guaranty may not be assigned by any
of the Guarantors without the express written consent of the Buyer.

     17.  Governing Law. THIS GUARANTY SHALL BE GOVERNED BY NEW YORK LAW WITHOUT
REFERENCE TO CHOICE OF LAW DOCTRINE.

     18. SUBMISSION TO JURISDICTION; WAIVERS. EACH GUARANTOR HEREBY WAIVES TRIAL
BY  JURY.  EACH  GUARANTOR  HEREBY  IRREVOCABLY  CONSENTS  TO THE  NON-EXCLUSIVE
JURISDICTION  OF ANY


                                       6

COURT OF THE STATE OF NEW YORK, OR IN THE UNITED STATES  DISTRICT  COURT FOR THE
SOUTHERN  DISTRICT  OF NEW  YORK,  ARISING  OUT OF OR  RELATING  TO THE  PROGRAM
DOCUMENTS IN ANY ACTION OR  PROCEEDING.  EACH  GUARANTOR  HEREBY SUBMITS TO, AND
WAIVES  ANY  OBJECTION  EACH  GUARANTOR  MAY  HAVE  TO,  NON-EXCLUSIVE  PERSONAL
JURISDICTION  AND VENUE IN THE  COURTS  OF THE STATE OF NEW YORK AND THE  UNITED
STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, WITH RESPECT TO ANY
DISPUTES ARISING OUT OF OR RELATING TO THE PROGRAM DOCUMENTS.

     19. Other Liens. Notwithstanding anything to the contrary contained herein,
liens previously granted by the Guarantors in favor of the Buyer or future liens
that are granted by the  Guarantors in favor of the Buyer will not  constitute a
breach of this Guaranty.

     20. Agents. The Buyer may employ agents and attorneys-in-fact in connection
herewith and shall not be  responsible  for the  negligence or misconduct of any
such agents or attorneys-in-fact selected by it in good faith.

     21.  Counterparts.   This  Guaranty  may  be  executed  in  any  number  of
counterparts, all of which when taken together shall constitute one and the same
instrument  and any of the parties  hereto may execute this  Guaranty by signing
any such counterpart.


                            [SIGNATURE PAGE FOLLOWS]


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     IN WITNESS WHEREOF, the parties hereto have caused this Guaranty to be duly
executed and delivered as of the day and year first above written.

WACHOVIA BANK, N.A.                             Address for Notices:
                                                301 South College Street
By:  /s/ Andrew W. Riebe                        Charlotte, North Carolina 28288-0610
   -----------------------------------------
Name:  Andrew W. Riebe                          Attention:   Andrew W. Riebe
Title:  Director                                Telephone:   (704) 715-1403
                                                Facsimile:   (704) 383-8121

NOVASTAR FINANCIAL, INC.,                       Address for Notices with respect
jointly and severally as a Guarantor            to each of the Guarantors:

                                                8140 Ward Parkway, Suite 300
By:  /s/ Todd M. Phillips                       Kansas City, Missouri 64114
   -----------------------------------------
Name:  Todd M. Phillips                         Attention:        Todd Phillips
Title:  Vice President, Treasurer &             Telephone:        (816) 237-7559
        Controller                              Facsimile:        (816) 237-7515
                                                E-mail:  todd.phillips@novastar1.com
NFI HOLDING CORPORATION,
jointly and severally as a Guarantor

By:  /s/ Todd M. Phillips
   -----------------------------------------
Name:  Todd M. Phillips
Title:  Vice President, Treasurer &
        Controller