-----BEGIN PRIVACY-ENHANCED MESSAGE-----
Proc-Type: 2001,MIC-CLEAR
Originator-Name: webmaster@www.sec.gov
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MIC-Info: RSA-MD5,RSA,
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 cjc2z+bx0ZLcEAT1Ar0ppw==

<SEC-DOCUMENT>0001025953-07-000048.txt : 20070316
<SEC-HEADER>0001025953-07-000048.hdr.sgml : 20070316
<ACCEPTANCE-DATETIME>20070316171547
ACCESSION NUMBER:		0001025953-07-000048
CONFORMED SUBMISSION TYPE:	4
PUBLIC DOCUMENT COUNT:		1
CONFORMED PERIOD OF REPORT:	20070314
FILED AS OF DATE:		20070316
DATE AS OF CHANGE:		20070316

ISSUER:		

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			NOVASTAR FINANCIAL INC
		CENTRAL INDEX KEY:			0001025953
		STANDARD INDUSTRIAL CLASSIFICATION:	REAL ESTATE INVESTMENT TRUSTS [6798]
		IRS NUMBER:				742830661
		STATE OF INCORPORATION:			MD
		FISCAL YEAR END:			1231

	BUSINESS ADDRESS:	
		STREET 1:		8140 WARD PARKWAY
		STREET 2:		STE 300
		CITY:			KANSAS CITY
		STATE:			MO
		ZIP:			64114
		BUSINESS PHONE:		8162377000

	MAIL ADDRESS:	
		STREET 1:		8140 WARD PARKWAY
		STREET 2:		STE 300
		CITY:			KANSAS CITY
		STATE:			MO
		ZIP:			64114

REPORTING-OWNER:	

	OWNER DATA:	
		COMPANY CONFORMED NAME:			Phillips Todd M
		CENTRAL INDEX KEY:			0001359109

	FILING VALUES:
		FORM TYPE:		4
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	001-13533
		FILM NUMBER:		07701145

	BUSINESS ADDRESS:	
		BUSINESS PHONE:		816-237-7078

	MAIL ADDRESS:	
		STREET 1:		8140 WARD PARKWAY, SUITE 300
		CITY:			KANSAS CITY
		STATE:			MO
		ZIP:			64114
</SEC-HEADER>
<DOCUMENT>
<TYPE>4
<SEQUENCE>1
<FILENAME>form4_ex.xml
<DESCRIPTION>FORM 4
<TEXT>
<XML>
<?xml version="1.0"?>
<ownershipDocument>

    <schemaVersion>X0202</schemaVersion>

    <documentType>4</documentType>

    <periodOfReport>2007-03-14</periodOfReport>

    <notSubjectToSection16>0</notSubjectToSection16>

    <issuer>
        <issuerCik>0001025953</issuerCik>
        <issuerName>NOVASTAR FINANCIAL INC</issuerName>
        <issuerTradingSymbol>NFI</issuerTradingSymbol>
    </issuer>

    <reportingOwner>
        <reportingOwnerId>
            <rptOwnerCik>0001359109</rptOwnerCik>
            <rptOwnerName>Phillips Todd M</rptOwnerName>
        </reportingOwnerId>
        <reportingOwnerAddress>
            <rptOwnerStreet1>8140 WARD PARKWAY, SUITE 300</rptOwnerStreet1>
            <rptOwnerStreet2></rptOwnerStreet2>
            <rptOwnerCity>KANSAS CITY</rptOwnerCity>
            <rptOwnerState>MO</rptOwnerState>
            <rptOwnerZipCode>64114</rptOwnerZipCode>
            <rptOwnerStateDescription></rptOwnerStateDescription>
        </reportingOwnerAddress>
        <reportingOwnerRelationship>
            <isDirector>0</isDirector>
            <isOfficer>1</isOfficer>
            <isTenPercentOwner>0</isTenPercentOwner>
            <isOther>0</isOther>
            <officerTitle>Chief Accounting Officer</officerTitle>
        </reportingOwnerRelationship>
    </reportingOwner>

    <nonDerivativeTable>
        <nonDerivativeTransaction>
            <securityTitle>
                <value>NovaStar Financial Inc. Common Stock</value>
            </securityTitle>
            <transactionDate>
                <value>2007-03-14</value>
            </transactionDate>
            <transactionCoding>
                <transactionFormType>4</transactionFormType>
                <transactionCode>A</transactionCode>
                <equitySwapInvolved>0</equitySwapInvolved>
            </transactionCoding>
            <transactionAmounts>
                <transactionShares>
                    <value>4737</value>
                    <footnoteId id="F1"/>
                </transactionShares>
                <transactionPricePerShare>
                    <value>0.00</value>
                </transactionPricePerShare>
                <transactionAcquiredDisposedCode>
                    <value>A</value>
                </transactionAcquiredDisposedCode>
            </transactionAmounts>
            <postTransactionAmounts>
                <sharesOwnedFollowingTransaction>
                    <value>5595</value>
                    <footnoteId id="F2"/>
                </sharesOwnedFollowingTransaction>
            </postTransactionAmounts>
            <ownershipNature>
                <directOrIndirectOwnership>
                    <value>D</value>
                </directOrIndirectOwnership>
            </ownershipNature>
        </nonDerivativeTransaction>
    </nonDerivativeTable>

    <derivativeTable>
        <derivativeTransaction>
            <securityTitle>
                <value>Stock Option</value>
            </securityTitle>
            <conversionOrExercisePrice>
                <value>4.18</value>
            </conversionOrExercisePrice>
            <transactionDate>
                <value>2007-03-14</value>
            </transactionDate>
            <transactionCoding>
                <transactionFormType>4</transactionFormType>
                <transactionCode>A</transactionCode>
                <equitySwapInvolved>0</equitySwapInvolved>
            </transactionCoding>
            <transactionAmounts>
                <transactionShares>
                    <value>2653</value>
                </transactionShares>
                <transactionPricePerShare>
                    <value>4.18</value>
                </transactionPricePerShare>
                <transactionAcquiredDisposedCode>
                    <value>D</value>
                </transactionAcquiredDisposedCode>
            </transactionAmounts>
            <exerciseDate>
                <value>2008-03-14</value>
            </exerciseDate>
            <expirationDate>
                <value>2017-03-14</value>
            </expirationDate>
            <underlyingSecurity>
                <underlyingSecurityTitle>
                    <value>NovaStar Financial Inc. Common Stock</value>
                </underlyingSecurityTitle>
                <underlyingSecurityShares>
                    <value>2653</value>
                </underlyingSecurityShares>
            </underlyingSecurity>
            <postTransactionAmounts>
                <sharesOwnedFollowingTransaction>
                    <value>5233</value>
                </sharesOwnedFollowingTransaction>
            </postTransactionAmounts>
            <ownershipNature>
                <directOrIndirectOwnership>
                    <value>D</value>
                </directOrIndirectOwnership>
            </ownershipNature>
        </derivativeTransaction>
        <derivativeTransaction>
            <securityTitle>
                <value>Stock Option</value>
            </securityTitle>
            <conversionOrExercisePrice>
                <value>4.18</value>
            </conversionOrExercisePrice>
            <transactionDate>
                <value>2007-03-14</value>
            </transactionDate>
            <transactionCoding>
                <transactionFormType>4</transactionFormType>
                <transactionCode>A</transactionCode>
                <equitySwapInvolved>0</equitySwapInvolved>
            </transactionCoding>
            <transactionAmounts>
                <transactionShares>
                    <value>2654</value>
                </transactionShares>
                <transactionPricePerShare>
                    <value>4.18</value>
                </transactionPricePerShare>
                <transactionAcquiredDisposedCode>
                    <value>D</value>
                </transactionAcquiredDisposedCode>
            </transactionAmounts>
            <exerciseDate>
                <value>2009-03-14</value>
            </exerciseDate>
            <expirationDate>
                <value>2017-03-14</value>
            </expirationDate>
            <underlyingSecurity>
                <underlyingSecurityTitle>
                    <value>NovaStar Financial Inc. Common Stock</value>
                </underlyingSecurityTitle>
                <underlyingSecurityShares>
                    <value>2654</value>
                </underlyingSecurityShares>
            </underlyingSecurity>
            <postTransactionAmounts>
                <sharesOwnedFollowingTransaction>
                    <value>7887</value>
                </sharesOwnedFollowingTransaction>
            </postTransactionAmounts>
            <ownershipNature>
                <directOrIndirectOwnership>
                    <value>D</value>
                </directOrIndirectOwnership>
            </ownershipNature>
        </derivativeTransaction>
        <derivativeTransaction>
            <securityTitle>
                <value>Stock Option</value>
            </securityTitle>
            <conversionOrExercisePrice>
                <value>4.18</value>
            </conversionOrExercisePrice>
            <transactionDate>
                <value>2007-03-14</value>
            </transactionDate>
            <transactionCoding>
                <transactionFormType>4</transactionFormType>
                <transactionCode>A</transactionCode>
                <equitySwapInvolved>0</equitySwapInvolved>
            </transactionCoding>
            <transactionAmounts>
                <transactionShares>
                    <value>2654</value>
                </transactionShares>
                <transactionPricePerShare>
                    <value>4.18</value>
                </transactionPricePerShare>
                <transactionAcquiredDisposedCode>
                    <value>D</value>
                </transactionAcquiredDisposedCode>
            </transactionAmounts>
            <exerciseDate>
                <value>2010-03-14</value>
            </exerciseDate>
            <expirationDate>
                <value>2017-03-14</value>
            </expirationDate>
            <underlyingSecurity>
                <underlyingSecurityTitle>
                    <value>NovaStar Financial Inc. Common Stock</value>
                </underlyingSecurityTitle>
                <underlyingSecurityShares>
                    <value>2654</value>
                </underlyingSecurityShares>
            </underlyingSecurity>
            <postTransactionAmounts>
                <sharesOwnedFollowingTransaction>
                    <value>10541</value>
                </sharesOwnedFollowingTransaction>
            </postTransactionAmounts>
            <ownershipNature>
                <directOrIndirectOwnership>
                    <value>D</value>
                </directOrIndirectOwnership>
            </ownershipNature>
        </derivativeTransaction>
        <derivativeTransaction>
            <securityTitle>
                <value>Stock Option</value>
            </securityTitle>
            <conversionOrExercisePrice>
                <value>4.18</value>
            </conversionOrExercisePrice>
            <transactionDate>
                <value>2007-03-14</value>
            </transactionDate>
            <transactionCoding>
                <transactionFormType>4</transactionFormType>
                <transactionCode>A</transactionCode>
                <equitySwapInvolved>0</equitySwapInvolved>
            </transactionCoding>
            <transactionAmounts>
                <transactionShares>
                    <value>2654</value>
                </transactionShares>
                <transactionPricePerShare>
                    <value>4.18</value>
                </transactionPricePerShare>
                <transactionAcquiredDisposedCode>
                    <value>D</value>
                </transactionAcquiredDisposedCode>
            </transactionAmounts>
            <exerciseDate>
                <value>2011-03-14</value>
            </exerciseDate>
            <expirationDate>
                <value>2017-03-14</value>
            </expirationDate>
            <underlyingSecurity>
                <underlyingSecurityTitle>
                    <value>NovaStar Financial Inc. Common Stock</value>
                </underlyingSecurityTitle>
                <underlyingSecurityShares>
                    <value>2654</value>
                </underlyingSecurityShares>
            </underlyingSecurity>
            <postTransactionAmounts>
                <sharesOwnedFollowingTransaction>
                    <value>13195</value>
                </sharesOwnedFollowingTransaction>
            </postTransactionAmounts>
            <ownershipNature>
                <directOrIndirectOwnership>
                    <value>D</value>
                </directOrIndirectOwnership>
            </ownershipNature>
        </derivativeTransaction>
    </derivativeTable>

    <footnotes>
        <footnote id="F1">This is a grant of restricted stock subject to a 5 year Cliff vesting period. Restricted stock has voting rights and rights
 to receive future dividends on dividend payment dates, but is subject to forfeiture.</footnote>
        <footnote id="F2">Includes 1,230 shares of stock held in the Company's 401(k) plan.</footnote>
    </footnotes>

    <ownerSignature>
        <signatureName>Todd M. Phillips</signatureName>
        <signatureDate>2007-03-16</signatureDate>
    </ownerSignature>
</ownershipDocument>
</XML>
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----