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                                  June 1, 2005

NovaStar Financial, Inc.
Suite 300
8140 Ward Parkway
Kansas City, Missouri 64114

          Re:  Registration Statement on Form S-3 (File No. 333-110574)

Ladies and Gentlemen:

     We have served as Maryland counsel to NovaStar Financial, Inc., a Maryland
corporation (the "Company"), in connection with certain matters of Maryland law
arising out of the issuance of up to 1,725,000 shares (the "Shares") of common
stock, $.01 par value per share (the "Common Stock"), of the Company (including
up to 225,000 Shares which the underwriters in the Offering (as defined herein)
have the option to purchase solely to cover over-allotments), covered by the
above-referenced Registration Statement, and all amendments thereto (the
"Registration Statement"), filed by the Company with the United States
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "1933 Act"). The Shares are to be issued in an
underwritten public offering (the "Offering") pursuant to a Prospectus
Supplement, dated May 26, 2005 (the "Prospectus Supplement"). Unless otherwise
defined herein, capitalized terms used herein shall have the meanings assigned
to them in the Registration Statement.

     In connection with our representation of the Company, and as a basis for
the opinion hereinafter set forth, we have examined originals, or copies
certified or otherwise identified to our satisfaction, of the following
documents (hereinafter collectively referred to as the "Documents"):

          1. The Registration Statement and the related form of prospectus
included therein, substantially in the form filed by the Company with the
Commission;

          2. The Prospectus Supplement, substantially in the form filed by the
Company with the Commission;

          3. The charter of the Company (the "Charter"), certified as of a
recent date by the State Department of Assessments and Taxation of Maryland (the
"SDAT");

          4. The Bylaws of the Company, certified as of the date hereof by an
officer of the Company;

VENABLE® LLP

NovaStar Financial, Inc.
June 1, 2005
Page 2

          5. A certificate of the SDAT as to the good standing of the Company,
dated as of a recent date;

          6. Resolutions adopted by the Board of Directors of the Company
relating to the authorization of the issuance of the Shares (the "Resolutions"),
certified as of the date hereof by an officer of the Company;

          7. A certificate executed by an officer of the Company, dated as of
the date hereof; and

          8. Such other documents and matters as we have deemed necessary or
appropriate to express the opinion set forth below, subject to the assumptions,
limitations and qualifications stated herein.

          In expressing the opinion set forth below, we have assumed the
following:

          1. Each individual executing any of the Documents, whether on behalf
of such individual or any other person, is legally competent to do so.

          2. Each individual executing any of the Documents on behalf of a party
(other than the Company) is duly authorized to do so.

          3. Each of the parties (other than the Company) executing any of the
Documents has duly and validly executed and delivered each of the Documents to
which such party is a signatory, and such party's obligations set forth therein
are legal, valid and binding and are enforceable in accordance with all stated
terms.

          4. All Documents submitted to us as originals are authentic. The form
and content of all Documents submitted to us as unexecuted drafts do not differ
in any respect relevant to this opinion from the form and content of such
Documents as executed and delivered. All Documents submitted to us as certified
or photostatic copies conform to the original documents. All signatures on all
such Documents are genuine. All public records reviewed or relied upon by us or
on our behalf are true and complete. All representations, warranties, statements
and information contained in the Documents are true and complete. There has been
no oral or written modification of or amendment to any of the Documents, and
there has been no waiver of any provision of any of the Documents, by action or
omission of the parties or otherwise.

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NovaStar Financial Inc.
June 1, 2005
Page 3


          5. The Shares will not be issued in violation of any restriction or
limitation contained in the Charter.

          Based upon the foregoing, and subject to the assumptions, limitations
and qualifications stated herein, it is our opinion that:

          1. The Company is a corporation duly incorporated and existing under
and by virtue of the laws of the State of Maryland and is in good standing with
the SDAT.

          2. The issuance of the Shares has been duly authorized and, when
issued and delivered by the Company pursuant to the Resolutions and the
Registration Statement against payment of the consideration set forth therein,
the Shares will be validly issued, fully paid and nonassessable.

          The foregoing opinion is limited to the substantive laws of the State
of Maryland, and we do not express any opinion herein concerning any other law.
We express no opinion as to the applicability or effect of any federal or state
securities laws, including the securities laws of the State of Maryland, or as
to federal or state laws regarding fraudulent transfers. To the extent that any
matter as to which our opinion is expressed herein would be governed by the laws
of any jurisdiction other than the State of Maryland, we do not express any
opinion on such matter.

          The opinion expressed herein is limited to the matters specifically
set forth herein and no other opinion shall be inferred beyond the matters
expressly stated. We assume no obligation to supplement this opinion if any
applicable law changes after the date hereof or if we become aware of any fact
that might change the opinion expressed herein after the date hereof.

          This opinion is being furnished to you solely for submission to the
Commission as an exhibit to the Company's Current Report on Form 8-K, filed on
our about the date hereof (the "Current Report"), which is incorporated by
reference in the Registration Statement, and, accordingly, may not be relied
upon by, quoted in any manner to, or delivered to any other person or entity
without, in each instance, our prior written consent. We hereby consent to the
filing of this opinion as an exhibit to the Current Report and the said
incorporation by reference and to the use of the name of our firm therein. In
giving this consent, we do not admit that we are within the category of persons
whose consent is required by Section 7 of the 1933 Act.

                                          Very truly yours,


                                          /s/ Venable LLP