Amendment Number Two to Master Repurchase Agreement (2007 Servicing Rights) among Wachovia Bank, Wachovia Capital Markets, and NovaStar Mortgage

 Exhibit 10.4 AMENDMENT NUMBER TWO to the MASTER REPURCHASE AGREEMENT (2007 SERVICING RIGHTS) Dated as of April 25, 2007 among WACHOVIA BANK, N.A. WACHOVIA CAPITAL MARKETS, LLC and NOVASTAR MORTGAGE, INC. AMENDMENT NUMBER TWO ("Amendment Number Two"), dated as of September 7, 2007, by and among Wachovia Bank, N.A., as buyer ("Buyer"), Wachovia Capital Markets, LLC, as agent ("Agent"), NovaStar Mortgage, Inc., as seller (the "Seller"), NovaStar Financial, Inc. ("NFI"), NovaStar Holding Corporation ("NHC") and Homeview Lending Inc. ("Homeview", together with Seller, NFI and NHC, each a Guarantor and collectively the "Guarantors") to the Master Repurchase Agreement (2007 Servicing Rights), dated as of April 25, 2007, as amended by Amendment Number One, dated May 10, 2007 (as amended, the "Master Repurchase Agreement"), by and among the Buyer, the Agent, the Seller and the Guarantors. RECITALS WHEREAS, Buyer, the Seller, the Guarantors and the Agent have agreed to amend the Master Repurchase Agreement pursuant to the terms and conditions set forth herein. NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: SECTION 1. Defined Terms. Any terms capitalized but not otherwise defined herein shall have the respective meanings set forth in the Master Repurchase Agreement. SECTION 2. Amendments. Effective as of the date hereof, the Master Repurchase Agreement is hereby amended as follows: (a) Section 2 of the Master Repurchase Agreement is hereby amended by deleting clause (a) of the definition of "Eligible Servicing Agreement" and replacing it with the following: "(a) such Servicing Agreement is in form and substance satisfactory to, and has been reviewed and approved by, the Buyer in its sole discretion, and such Servicing Agreement contains 

 servicing and assignment of servicing rights provisions acceptable to the Buyer and with respect to the Servicing Agreements identified in Sections (a) and (b) of Schedule 1, Buyer shall have received the Resignation Letter and the Trustee Side Letter. The Buyer shall hold the Resignation Letter and Trustee Side Letter in escrow until the earliest of: (i) the resignation of the Seller as Servicer, (ii) the occurrence of an Event of Default or (iii) upon notification by the Agent to the Servicer that the Agent reasonably believes that an event will occur which would cause a trustee to be permitted or required to appoint a backup or successor servicer under a Servicing Agreement, then Servicer agrees to release its resignation letter with respect to such Servicing Agreement." (b) The first sentence in Section 9(a)(vi) of the Master Repurchase Agreement is hereby amended by deleting the reference to "$517,000,000" and replacing it with: "$150,000,000". (c) Section 13(q)(ii) is hereby amended by adding the word "not" after the word "shall" and before the word "exercise" in the second sentence thereof. (d) Section 13(t) of the Master Repurchase Agreement is hereby amended and restated in its entirety as follows: t. Maintenance of Adjusted Tangible Net Worth. The Adjusted Tangible Net Worth of NFI at any time shall be greater than $150,000,000. (e) Section 13(v) of the Master Repurchase Agreement is hereby amended and restated in its entirety as follows: v. At any time and for any reason, the Agent may, at Seller's expense, cause the appointment with immediate effect of one or more backup servicers to service some or all of the Purchased Assets, including, without limitation, the Purchased Assets relating to all repurchase agreements and other warehouse facilities, if any, and all securitizations, subject to the rights, if any, of parties other than Seller and its Affiliates to participate in the selection, instruction and/or monitoring of such backup servicer(s). Seller agrees, and agrees to cause its Subsidiaries and any other Affiliates within its control, to cooperate in any manner the Agent indicates is reasonably necessary to assist with the creation and maintenance of such backup servicing arrangements on terms acceptable to the Agent in its sole and absolute discretion. (f) Section 18(q) of the Master Repurchase Agreement is hereby 

 amended and restated in its entirety as follows: q. [reserved]; (g) Section 18(r) of the Master Repurchase Agreement is hereby amended and restated in its entirety as follows:. r. the Adjusted Tangible Net Worth of NFI, on a consolidated basis, is less than or equal to $150,000,000 at any time;" (h) Section 18(ii) of the Master Repurchase Agreement is hereby amended and restated in its entirety as follows: (ii) Servicer's current servicing rating is downgraded: (i) with respect to Moody's below SQ4 (ii) with respect to S&P below "Average" and (iii) with respect to Fitch below RPS4; or (i) Clause (i) of Exhibit A-2 to the Master Repurchase Agreement is hereby deleted in its entirety and replaced with the following: (j) [reserved]; (k) Clause (ii) of Exhibit A-2 to the Master Repurchase Agreement is hereby amended by deleting the reference to "$517,000,000" therein and replacing it with: "$150,000,000". SECTION 3. Conditions Precedent. This Amendment Number Two shall become effective only when: (a) this Amendment Number Two is executed and delivered by duly authorized officers of each of Buyer, Seller, Guarantors and Agent; (b) Buyer shall have received all fees and other amounts due and payable on or prior to the date hereof, including reimbursement of all out-of pocket expenses required to be reimbursed or paid by Seller hereunder or any other Program Document; (c) Any other deliverable due as the date hereof to Buyer; and (d) Buyer has received any other documents as the Buyer or counsel to the Buyer may reasonably request. SECTION 4. Governing Law. THIS AMENDMENT NUMBER TWO SHALL BE CONSTRUED IN ACCORDANCE WITH, AND GOVERNED BY, THE LAW OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF. 

 SECTION 5. Counterparts. This Amendment Number Two may be executed by each of the parties hereto on any number of separate counterparts, each of which shall be an original and all of which taken together shall constitute one and the same instrument. SECTION 6. Costs. Seller shall promptly reimburse Buyer for all out-of-pocket costs and expenses of Buyer in connection with the preparation, execution and delivery of this Amendment Number Two (including, without limitation, the fees and expenses of counsel for Buyer). SECTION 7. Limited Effect. Except as amended hereby, the Master Repurchase Agreement shall continue in full force and effect in accordance with its respective terms. Reference to this Amendment Number Two need not be made in the Master Repurchase Agreement or any other instrument or document executed in connection therewith, or in any certificate, letter or communication issued or made pursuant to, or with respect to, the Master Repurchase Agreement, any reference therein to the Master Repurchase Agreement, being sufficient to refer to the Master Repurchase Agreement, as amended thereby. Seller shall be responsible for all costs associated with this Amendment Number Two. [SIGNATURE PAGE FOLLOWS] 

 IN WITNESS WHEREOF, Seller, Buyer, Agent and Guarantors have caused their names to be signed to this Amendment Number Two by their respective officers thereunto duly authorized as of the date first above written. NOVASTAR MORTGAGE, INC., as Seller By: /s/ Todd M. Phillips ------------------------------- Name: Todd M. Phillips Title: Vice President, Treasurer & Controller WACHOVIA BANK, N.A., as Buyer By: /s/ Goetz Rokahr -------------------------------------- Name: Goetz Rokahr ------------------------------------ Title: Vice President ----------------------------------- WACHOVIA CAPITAL MARKETS, LLC, as Agent By: /s/ Scott Schuman -------------------------------------- Name: Scott Schuman ------------------------------------ Title: Vice President ----------------------------------- Amendment No. 2 to the Master Repurchase Agreement (Servicing Rights) 

 Acknowledged and Agreed: NFI HOLDING CORPORATION, as Guarantor By: /s/ Todd M. Phillips ------------------------------- Name: Todd M. Phillips Title: Vice President, Treasurer & Controller NOVASTAR FINANCIAL, INC., as Guarantor By: /s/ Todd M. Phillips ------------------------------- Name: Todd M. Phillips Title: Vice President, Treasurer & Controller NOVASTAR MORTGAGE, INC., as Guarantor By: /s/ Todd M. Phillips ------------------------------- Name: Todd M. Phillips Title: Vice President, Treasurer & Controller HOMEVIEW LENDING INC., as Guarantor By: /s/ Todd M. Phillips ------------------------------- Name: Todd M. Phillips Title: Vice President Amendment No. 2 to the Master Repurchase Agreement (Servicing Rights)