After word spread of NovaStar's decision to stop accepting wholesale mortgages, Scott Valentin, an analyst at Friedman, Billings, Ramsey, cut his price target on the company's shares to $0. He also reiterated his underperform rating.
After NovaStar(NFI6.78, +0.38, +5.9%) -issued its statement later on Monday about the resumption of wholesale origination, Valentin said he was sticking to his call.
"Subprime mortgage conditions have deteriorated in recent weeks, as whole loan and securitization markets have ground to a halt, forcing NovaStar to retain assets," Valentin wrote in a note to clients on Monday. "Asset prices have declined further, subjecting NovaStar to potential margin calls, which we believe it will be unable to meet given its highly levered balance sheet."
"The likelihood of subprime mortgage market conditions improving in the near term (is) very low," he added, noting that "there is a high likelihood NovaStar will be unable to continue operations."