INTERCOMPANY ADMINISTRATIVE
SERVICES/OUTSOURCING AGREEMENT

THIS INTERCOMPANY ADMINISTRATIVE SERVICES/OUTSOURCING AGREEMENT, dated as of June 30, 1997 (the "Agreement"), is made by and between NOVASTAR FINANCIAL, INC., a Maryland corporation ("NovaStar"), and NOVASTAR MORTGAGE, INC., a Virginia corporation ("Mortgage").

RECITALS

A. Mortgage is an indirect affiliate of NovaStar in that Mortgage is a wholly owned subsidiary of NFI Holding Corporation (NFI). NovaStar owns 100% of NFI’s Series A (non-voting) Preferred Stock, for which it receives 99% of NFI’s economic benefits. NFI in turn owns 100% of the outstanding capital stock of Mortgage.

B. NovaStar desires for Mortgage to provide and Mortgage is willing to provide to NovaStar certain administrative services as described herein, in each case on the terms and conditions set forth herein.

AGREEMENT

ACCORDINGLY, in consideration of the foregoing premises, the mutual covenants and agreements set forth herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

1. Provision of Services. NovaStar may engage the services of Mortgage with respect to, and upon the request of NovaStar, Mortgage will perform, the Administrative Services described as Schedule 1 attached hereto, as well as other administrative services necessary or appropriate to enable NovaStar to conduct its business.

2. No Limitations. There are no contractual limitations on Mortgage's ability to perform any of the activities set forth in Schedule 1 on its own behalf, nor on NovaStar's ability to utilize the staff and resources of Mortgage for such activities, provided that NovaStar pays Mortgage for services as provided herein. NovaStar shall be responsible for determining those services it requires Mortgage to perform and for notifying Mortgage of any special requirements with regard to such services.

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