1st Metropolitan, NovaStar Develop Alliance; Companies Tap Branch Management, Non-Conforming Lending Expertise.

CHARLOTTE, N.C. -- 1st Metropolitan Mortgage, a leading mortgage broker and a division of Empire Equity Group, Inc., and NovaStar Home Mortgage Inc. have developed a business alliance that will allow some NovaStar branches to join 1st Metropolitan as MetroBranches by the end of the year. In addition, through a special marketing agreement, NovaStar will become a preferred lender for nonconforming mortgages for 1st Metropolitan.

To help affected branches make the transition, 1st Metropolitan is hosting a two-day event in New York on Nov. 8 and 9 that will include educational presentations as well as opportunities for NovaStar branch managers to meet 1st Metropolitan executives and branch managers.

"The business alliance we have developed with NovaStar allows both companies to showcase their strengths," said Daniel H. Jacobs, chief executive officer of 1st Metropolitan. "NovaStar is a premier provider of nonprime loans and we look forward to benefiting from that expertise. At 1st Metropolitan, we have built a network of MetroBranches that are successful because we know how to provide the office and regulatory support and technology they need so they can focus on one thing: originating loans."

A significant number of NovaStar branches will have the opportunity to transition to MetroBranching by the end of the year. While these branches have been productive, they have traditionally originated mostly conforming loans. NovaStar's focus is geared toward branches, which fund a high volume of nonconforming loans through the NovaStar lending channel. Because 1st Metropolitan focuses on creating strong alliances with top national lenders instead of participating in internal lending activities, the new alliance an excellent strategy, Jacobs said.

"We expect NovaStar's $11 billion loan portfolio to keep growing as we focus on the most productive, low-cost channels for originating mortgages," said W. Lance Anderson, president and chief operating officer at NovaStar said. "In addition to streamlining our operation, NovaStar looks forward to the opportunity to provide expertise in nonconforming mortgage loans to approximately 200 1st Metropolitan branches nationwide."

In addition to the marketing agreement with NovaStar, 1st Metropolitan will offer incentives to transferring branches. The branches also will be able to seamlessly move their pipeline to 1st Metropolitan, therefore not creating an interruption in business or service to customers. Under normal branch transition scenarios, this aspect of the deal would not exist, Jacobs said.

"We want to minimize the effect that a deal such as this could have on the families involved because we know their livelihoods depend on uninterrupted loan production," Jacobs said. "And what will make this process less arduous is our experience and the fact that we share some of the same values with NovaStar; integrity and the importance of building quality relationships."

1st Metropolitan, which has more than 200 branches nationwide, has a history of implementing successful transition programs for multiple branches, Jacobs pointed out.

To give NovaStar branch managers a better understanding of 1st Metropolitan's culture and its way of doing business, the company is offering an all-expense paid trip to New York for the interested branch managers.

"This is truly a once in a career event because the affected NovaStar branch managers can explore the advantages and benefits of joining 1st Metropolitan by talking with our executives and branches managers," Jacobs said. "Along with our chief compliance officer and other senior staff, we will have nationally renowned mortgage industry expert Greg Frost there to discuss sales, marketing and technology. We are excited to offer an educational component to our 'Meet 1st Metropolitan' event in New York as a part of our commitment to industry education." 1st Metropolitan mortgage has previously stated its commitment to education as a National Association of Mortgage Brokers gold sponsor.

A special team of professionals at 1st Metropolitan will work with the affected branches and NovaStar to ensure that the transition goes as smoothly as possible, Jacobs added.

About 1st Metropolitan Mortgage

1st Metropolitan Mortgage, based in Charlotte, N.C. and a division of Empire Equity Group since 2002, is a leading mortgage brokerage, offering products from such companies as Countrywide Home Mortgage, Chase Mortgage and Wells Fargo. The company is licensed in 48 states with approximately 250 branches nationwide. Leveraging the 20 years of experience of its parent company, 1st Metropolitan has an aggressive business development strategy. 1st Metropolitan's strategic theme for 2004 is The Art of Being 1st: Opportunities Amid Change. For more information, visit www.1stmetro.com.

About Empire Equity Group, Inc.

Empire Equity Group has been in business since 1983 focusing heavily in the Northeastern United States. Since the acquisition of 1st Metropolitan, Empire has established development programs for branch managers, additional infrastructure to meet the needs of branches and installed the latest technology, such as an expanded intranet site and an innovative online loan origination system. For more information, call 704.552.0123.

About NovaStar Mortgage Inc.

NovaStar Financial, Inc. (NYSE:NFI) is one of the nation's leading lenders and investors in residential mortgages. The company specializes in single-family, nonconforming mortgages, involving borrowers whose loan size, credit details or other circumstances fall outside conventional mortgage agency guidelines. A Real Estate Investment Trust (REIT) founded in 1996, NovaStar efficiently brings together the capital markets, a nationwide network of mortgage brokers and American families financing their homes. NovaStar is headquartered in Kansas City, Missouri, and has lending operations nationwide.