Exhbit 10.2

                              FORBEARANCE AGREEMENT

     This FORBEARANCE AGREEMENT (this "Agreement"),  dated as of April 29, 2008,
is among  NOVASTAR  MORTGAGE,  INC.,  a Virginia  corporation  (the  "Company");
NOVASTAR FINANCIAL, INC., a Maryland corporation (the "Guarantor");  THE BANK OF
NEW YORK TRUST  COMPANY,  NATIONAL  ASSOCIATION  (as successor to JPMorgan Chase
Bank, National  Association),  as Trustee under the Indenture defined below (the
"Indenture Trustee"); NOVASTAR CAPITAL TRUST II, a statutory trust created under
the laws of the State of  Delaware  (the  "Trust");  THE BANK OF NEW YORK  TRUST
COMPANY,  NATIONAL  ASSOCIATION  (as successor to JPMorgan Chase Bank,  National
Association),  as property  trustee of the Trust (the  "Property  Trustee");  W.
Lance  Anderson,  Rodney E.  Schwatken and Todd M. Phillips,  as  administrative
trustees of the Trust (collectively,  the "Administrative Trustees"); KODIAK CDO
I, LTD., a Cayman  company,  and KODIAK CDO II, LTD., a Cayman  company,  as the
preferred securities holders (the "Preferred Securities Holders");  and THE BANK
OF NEW YORK TRUST COMPANY,  NATIONAL ASSOCIATION (as successor to JPMorgan Chase
Bank,  National  Association),  as trustee under the Guaranty defined below (the
"Guaranty Trustee").

     WHEREAS,  pursuant to that certain NovaStar  Mortgage,  Inc.  Floating Rate
Junior Subordinated Note due 2036, in the principal amount of $36,083,000, dated
April 18,  2006 (the  "Note"),  the  Company  promised  to pay  interest  on the
principal amount of the Note quarterly in arrears;

     WHEREAS,  the Guarantor guaranteed the obligations of the Company under the
Note and the  Indenture  pursuant to that certain  Parent  Guarantee  Agreement,
dated as of April 18, 2006,  by the  Guarantor  and the  Guarantee  Trustee (the
"Guaranty");

     WHEREAS, the Company failed to pay the interest due on the principal amount
of the Note on March 30, 2008 (the "Designated Default");

     WHEREAS,  the Designated Default  constitutes an Event of Default under and
as defined in that certain Junior Subordinated Indenture,  dated as of April 18,
2006,  among  the  Company,  the  Guarantor,  and  the  Indenture  Trustee  (the
"Indenture");

     WHEREAS,  by  reason  of the  existence  of  the  Designated  Default,  the
Indenture Trustee, the Trust, the Preferred Securities Holders, and the Guaranty
Trustee have or will have full legal right to exercise their rights and remedies
under the Indenture and the Guaranty;

     WHEREAS,  the  Company  is the  legal and  beneficial  holder of all of the
common securities issued by the Trust, and the Preferred  Securities Holders are
the legal and beneficial  holders of all of the preferred  securities  issued by
the Trust; and

     WHEREAS,  the Company and the Guarantor  have  requested that the Indenture
Trustee,  the Trust, the Property  Trustee,  the  Administrative  Trustees,  the
Preferred  Securities Holders,  and the Guaranty Trustee forbear for a period of
time from  exercising  their rights and remedies with respect to the  Designated
Default.

                                       1

     NOW THEREFORE,  in consideration  of the Recitals,  the mutual promises and
covenants  contained  herein  and other  good and  valuable  consideration,  the
receipt and  sufficiency  of which are hereby  acknowledged,  the parties hereto
agree as follows:

     1.  Definitions.  Capitalized  terms used but not otherwise defined herein,
including  the  Recitals,  shall  have  the  meanings  assigned  to  them in the
Indenture.

     2. Forbearance.  During the period commencing on the date hereof and ending
without  any  notice  from or other  action by any  Person on May 30,  2008 (the
"Forbearance  Period"),  the Indenture Trustee, the Trust, the Property Trustee,
the Administrative  Trustees, the Preferred Securities Holders, and the Guaranty
Trustee will  forbear in the  exercise of their  rights and  remedies  under the
Indenture,  the Note or any other  document or  instrument  with  respect to the
Designated Default. Without limiting the generality of the foregoing, during the
Forbearance Period, the Indenture Trustee,  the Trust, the Property Trustee, the
Administrative  Trustees,  the Preferred  Securities  Holders,  and the Guaranty
Trustee will not (i) accelerate the maturity of the Note or initiate proceedings
for the  collection  of the  principal  amount of, any interest on, or any other
amount with  respect to the Note or the  Indenture;  (ii) file or join in filing
any  involuntary  petition  in  bankruptcy  with  respect to the  Company or the
Guarantor,   or  otherwise  initiate  or  participate  in  similar   insolvency,
reorganization,  or moratorium  proceedings  for the benefit of creditors of the
Company or the Guarantor;  or (iii) demand payment pursuant to the Guaranty;  in
each case,  with respect to the  Designated  Default.  Notwithstanding  anything
herein to the  contrary,  with  respect to any Event of  Default  other than the
Designated Default,  the Indenture Trustee, the Trust, the Property Trustee, the
Administrative  Trustees,  the Preferred  Securities  Holders,  and the Guaranty
Trustee  reserve  and  preserve  all of their  rights  and  remedies  under  the
Indenture, the Note and any other document or instrument.

     3. Conditions to Forbearance. In consideration of the forbearance set forth
in Section 2 hereof, the Company acknowledges and agrees as follows:

          (a) Indebtedness.  During the Forbearance Period, the Company will not
     incur any  additional  indebtedness,  other than  ordinary  trade  accounts
     payable.

          (b) Sale of Assets.  During the Forbearance Period,  other than in the
     ordinary course of business, the Company will not convey, transfer or lease
     any of its properties and assets,  and no Person shall receive or lease any
     of the Company's properties and assets.

          (c)  Consolidation  or Merger.  During  the  Forbearance  Period,  the
     Company will not  consolidate  with or merge into any other Person,  and no
     Person shall consolidate with or merge into the Company.

          (d)  Senior  Debt.  As  of  the  date  hereof,  the  total  amount  of
     outstanding  borrowings  and any  remaining  fees due under  those  certain
     Master Repurchase  Agreement (2007 Whole Loan), Master Repurchase Agreement
     (2007   Investment   Grade)   and   Master   Repurchase   Agreement   (2007
     Non-Investment  Grade),  each  expiring May 29,  2008,  and  including  any
     amendments,  modifications  or waivers with respect thereto  (collectively,
     the "Wachovia Facility") is $11,879,613.66.

                                       2

          (e) Senior  Debt  Repayment.  On or before May 30,  2008,  the Company
     shall fully repay 100% of all outstanding borrowings and any remaining fees
     due under the Wachovia Facility.

     4. Representations and Warranties.  Each party hereto hereby represents and
warrants to each other party hereto as follows:

          (a)  Power;  Authorization.  Such  Person has the  corporate,  limited
     liability, or trust power and authority and has been duly authorized by all
     requisite  corporate,  limited liability,  trust or other action to execute
     and  deliver  this  Agreement  and to  perform  such  Person's  obligations
     hereunder.  This  Agreement  has been duly  executed and  delivered by such
     Person.

          (b)  Enforceability.  This Agreement is the legal,  valid, and binding
     obligation  of such Person,  enforceable  against such Person in accordance
     with its terms.

     5.  Direction of Trustees.  By  execution  of this  Agreement,  each of the
Administrative  Trustees,  on behalf of the Trust,  as the legal and  beneficial
holder of 100% in aggregate principal amount of the Outstanding Securities,  and
the Preferred Securities Holders, as the legal and beneficial holders of 100% in
aggregate Liquidation Amount of the outstanding Preferred Securities, hereby (a)
consents to the  execution  and  delivery  of this  Agreement  by the  Indenture
Trustee,  the Property  Trustee,  and the Guaranty  Trustee  (collectively,  the
"Directed  Trustees"),  (b) directs each Directed Trustee to execute and deliver
this Agreement,  and (c) agrees to and does hereby release each Directed Trustee
for any action taken or to be taken by any Directed  Trustee in connection  with
its  execution  and  delivery  of  this  Agreement  and  for  any  liability  or
responsibility  arising in connection  herewith.  None of the Directed  Trustees
shall be responsible in any manner  whatsoever to any person for the validity or
sufficiency  of this Agreement or the due execution  hereof by the Company,  the
Administrative  Trustees or any Holder of  Outstanding  Securities  or Preferred
Securities,  for any circumstance resulting from its execution of this Agreement
or for or in respect of the recitals and  statements of fact  contained  herein,
all of which recitals and statements of fact are made solely by the Company, the
Guarantor,  the Administrative  Trustees,  and the Preferred Securities Holders,
respectively.

     6. Miscellaneous.

          (a) Benefit of Agreement.  This Agreement shall be binding upon, inure
     to the  benefit  of and be  enforceable  by the  parties  hereto  and their
     successors  and  assigns.  No other  Person  shall be entitled to claim any
     right  or  benefit  hereunder,   including  the  status  of  a  third-party
     beneficiary of this Agreement.

          (b) Entire Agreement.  Except as expressly set forth herein, there are
     no agreements or understandings,  written or oral, among the parties hereto
     relating  to this  Agreement  that are not fully and  completely  set forth
     herein.

          (c) Governing Law. This  Agreement  shall be governed by and construed
     and enforced in accordance with the internal  substantive laws of the State
     of New York  applicable  to  contracts  made and  performed  in that state,
     without regard to the choice of law

                                       3

     principles  thereof to the extent  such  principles  would  provide for the
     application of the substantive laws of a jurisdiction  other than the State
     of New York, and any applicable laws of the United States of America.

          (d) Section Titles. The Section titles of this Agreement are and shall
     be without  substantive  meaning or content of any kind  whatsoever and are
     not a part of the agreement between the parties hereto.

          (e) Counterparts; Facsimile Signatures. This Agreement may be executed
     in any number of counterparts and by different parties to this Agreement on
     separate counterparts,  each of which, when so executed, shall be deemed an
     original,  but all  such  counterparts  shall  constitute  one and the same
     agreement.  Any  signature  delivered  by a party  by  facsimile  or  other
     electronic transmission shall be deemed to be an original signature hereto.

          (f) Amendment.  No amendment or  modification of any provision of this
     Agreement  shall be  effective,  unless the same  shall be in  writing  and
     signed by the parties hereto.

                            [Remainder of page blank]

                                       4

     IN WITNESS  WHEREOF,  the parties hereto duly executed this Agreement as of
the date first written above.

                                       NOVASTAR MORTGAGE, INC.



                                       By:  /s/ Rodney E. Schwatken
                                          --------------------------------------
                                       Name:  Rodney E. Schwatken
                                            ------------------------------------
                                       Title:  SVP, Chief Financial Officer and
                                               Secretary
                                             -----------------------------------



                                       NOVASTAR FINANCIAL, INC.



                                       By:  /s/ Rodney E. Schwatken
                                          --------------------------------------
                                       Name:  Rodney E. Schwatken
                                            ------------------------------------
                                       Title:  SVP, Chief Financial Officer and
                                               Secretary
                                             -----------------------------------



                                       /s/ W. Lance Anderson
                                       -----------------------------------------
                                       W. Lance  Anderson, as the Administrative
                                       Trustee



                                       /s/ Rodney E. Schwatken
                                       -----------------------------------------
                                       Rodney E. Schwatken, as the
                                       Administrative Trustee


                                       /s/ Todd M. Phillips
                                       -----------------------------------------
                                       Todd M. Phillips, as the Administrative
                                       Trustee



                                       NOVASTAR CAPITAL TRUST II



                                       By:  /s/ W. Lance Anderson
                                          --------------------------------------
                                       Name:    W. Lance Anderson
                                            ------------------------------------
                                       Title:   Administrative Trustee
                                             -----------------------------------

                                       5

                                       THE BANK OF NEW YORK  TRUST COMPANY,
                                       NATIONAL ASSOCIATION, as the Indenture
                                       Trustee, the Property Trustee, and the
                                       Guaranty Trustee



                                       By:  /s/ Maria D. Calzado
                                          --------------------------------------
                                       Name:  Maria D. Calzado
                                            ------------------------------------
                                       Title:  Vice President
                                             -----------------------------------



                       [Signatures continue on next page]

                                       6

                                       KODIAK CDO I, LTD.

                                       By:  Kodiak CDO Management LLC
                                            Its:  Collateral Manager

                                       By:  Kodiak Funding, LP
                                            Its:  Sole Member

                                       By:  Kodiak Funding Company, Inc.
                                            Its:  General Partner


                                       By:  /s/ Robert M. Hurley
                                          --------------------------------------
                                       Name:  Robert M. Hurley
                                       Title:  Chief Financial Officer


                                       KODIAK CDO II, LTD.

                                       By:  Kodiak CDO Management LLC
                                            Its:  Collateral Manager

                                       By:  Kodiak Funding, LP
                                            Its:  Sole Member

                                       By:  Kodiak Funding Company, Inc.
                                            Its:  General Partner


                                       By:  /s/ Robert M. Hurley
                                          --------------------------------------
                                       Name:  Robert M. Hurley
                                       Title:  Chief Financial Officer

                                       7