-----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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 niD26b8t2iAiAfP8G16fUQ==

<SEC-DOCUMENT>0001181431-04-060125.txt : 20041221
<SEC-HEADER>0001181431-04-060125.hdr.sgml : 20041221
<ACCEPTANCE-DATETIME>20041221151919
ACCESSION NUMBER:		0001181431-04-060125
CONFORMED SUBMISSION TYPE:	4
PUBLIC DOCUMENT COUNT:		1
CONFORMED PERIOD OF REPORT:	20041220
FILED AS OF DATE:		20041221
DATE AS OF CHANGE:		20041221

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:			BAMBURG MICHAEL L
		CENTRAL INDEX KEY:			0001207182

	FILING VALUES:
		FORM TYPE:		4
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	001-13533
		FILM NUMBER:		041217113

	BUSINESS ADDRESS:	
		BUSINESS PHONE:		9133621090

	MAIL ADDRESS:	
		STREET 1:		C/O NOVASTAR FINANCIAL INC
		STREET 2:		1901 WEST 47TH PL. #105
		CITY:			WESTWOOD
		STATE:			KS
		ZIP:			66205
</SEC-HEADER>
<DOCUMENT>
<TYPE>4
<SEQUENCE>1
<FILENAME>rrd62124.xml
<DESCRIPTION>OPTION EXERCISE
<TEXT>
<XML>
<?xml version="1.0"?>
<ownershipDocument>

    <schemaVersion>X0202</schemaVersion>

    <documentType>4</documentType>

    <periodOfReport>2004-12-20</periodOfReport>

    <notSubjectToSection16>0</notSubjectToSection16>

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

    <reportingOwner>
        <reportingOwnerId>
            <rptOwnerCik>0001207182</rptOwnerCik>
            <rptOwnerName>BAMBURG MICHAEL L</rptOwnerName>
        </reportingOwnerId>
        <reportingOwnerAddress>
            <rptOwnerStreet1>8140 WARD PARKWAY</rptOwnerStreet1>
            <rptOwnerStreet2>SUITE 300</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>Senior Vice President</officerTitle>
        </reportingOwnerRelationship>
    </reportingOwner>

    <nonDerivativeTable>
        <nonDerivativeTransaction>
            <securityTitle>
                <value>NovaStar Financial, Inc. Common Stock</value>
            </securityTitle>
            <transactionDate>
                <value>2004-12-20</value>
            </transactionDate>
            <deemedExecutionDate>
                <value>2004-12-20</value>
            </deemedExecutionDate>
            <transactionCoding>
                <transactionFormType>4</transactionFormType>
                <transactionCode>M</transactionCode>
                <equitySwapInvolved>0</equitySwapInvolved>
            </transactionCoding>
            <transactionAmounts>
                <transactionShares>
                    <value>5000</value>
                </transactionShares>
                <transactionPricePerShare>
                    <value>1.875</value>
                </transactionPricePerShare>
                <transactionAcquiredDisposedCode>
                    <value>A</value>
                </transactionAcquiredDisposedCode>
            </transactionAmounts>
            <postTransactionAmounts>
                <sharesOwnedFollowingTransaction>
                    <value>338402</value>
                </sharesOwnedFollowingTransaction>
            </postTransactionAmounts>
            <ownershipNature>
                <directOrIndirectOwnership>
                    <value>D</value>
                </directOrIndirectOwnership>
            </ownershipNature>
        </nonDerivativeTransaction>
        <nonDerivativeTransaction>
            <securityTitle>
                <value>NovaStar Financial, Inc. Common Stock</value>
            </securityTitle>
            <transactionDate>
                <value>2004-12-20</value>
            </transactionDate>
            <deemedExecutionDate>
                <value>2004-12-20</value>
            </deemedExecutionDate>
            <transactionCoding>
                <transactionFormType>4</transactionFormType>
                <transactionCode>M</transactionCode>
                <equitySwapInvolved>0</equitySwapInvolved>
            </transactionCoding>
            <transactionAmounts>
                <transactionShares>
                    <value>2000</value>
                </transactionShares>
                <transactionPricePerShare>
                    <value>7.16</value>
                </transactionPricePerShare>
                <transactionAcquiredDisposedCode>
                    <value>A</value>
                </transactionAcquiredDisposedCode>
            </transactionAmounts>
            <postTransactionAmounts>
                <sharesOwnedFollowingTransaction>
                    <value>340402</value>
                </sharesOwnedFollowingTransaction>
            </postTransactionAmounts>
            <ownershipNature>
                <directOrIndirectOwnership>
                    <value>D</value>
                </directOrIndirectOwnership>
            </ownershipNature>
        </nonDerivativeTransaction>
        <nonDerivativeTransaction>
            <securityTitle>
                <value>NovaStar Financial, Inc. Common Stock</value>
            </securityTitle>
            <transactionDate>
                <value>2004-12-20</value>
            </transactionDate>
            <deemedExecutionDate>
                <value>2004-12-20</value>
            </deemedExecutionDate>
            <transactionCoding>
                <transactionFormType>4</transactionFormType>
                <transactionCode>M</transactionCode>
                <equitySwapInvolved>0</equitySwapInvolved>
            </transactionCoding>
            <transactionAmounts>
                <transactionShares>
                    <value>655</value>
                </transactionShares>
                <transactionPricePerShare>
                    <value>0</value>
                </transactionPricePerShare>
                <transactionAcquiredDisposedCode>
                    <value>A</value>
                </transactionAcquiredDisposedCode>
            </transactionAmounts>
            <postTransactionAmounts>
                <sharesOwnedFollowingTransaction>
                    <value>341057</value>
                </sharesOwnedFollowingTransaction>
            </postTransactionAmounts>
            <ownershipNature>
                <directOrIndirectOwnership>
                    <value>D</value>
                </directOrIndirectOwnership>
            </ownershipNature>
        </nonDerivativeTransaction>
    </nonDerivativeTable>

    <derivativeTable>
        <derivativeTransaction>
            <securityTitle>
                <value>Stock Option</value>
            </securityTitle>
            <conversionOrExercisePrice>
                <value>1.875</value>
            </conversionOrExercisePrice>
            <transactionDate>
                <value>2004-12-20</value>
            </transactionDate>
            <deemedExecutionDate>
                <value>2004-12-20</value>
            </deemedExecutionDate>
            <transactionCoding>
                <transactionFormType>4</transactionFormType>
                <transactionCode>M</transactionCode>
                <equitySwapInvolved>0</equitySwapInvolved>
            </transactionCoding>
            <transactionAmounts>
                <transactionShares>
                    <value>5000</value>
                </transactionShares>
                <transactionPricePerShare>
                    <value>1.875</value>
                </transactionPricePerShare>
                <transactionAcquiredDisposedCode>
                    <value>D</value>
                </transactionAcquiredDisposedCode>
            </transactionAmounts>
            <exerciseDate>
                <value>2004-12-20</value>
            </exerciseDate>
            <expirationDate>
                <value>2010-12-20</value>
            </expirationDate>
            <underlyingSecurity>
                <underlyingSecurityTitle>
                    <value>NovaStar Financial, Inc. Common Stock</value>
                </underlyingSecurityTitle>
                <underlyingSecurityShares>
                    <value>5000</value>
                </underlyingSecurityShares>
            </underlyingSecurity>
            <postTransactionAmounts>
                <sharesOwnedFollowingTransaction>
                    <value>39000</value>
                </sharesOwnedFollowingTransaction>
            </postTransactionAmounts>
            <ownershipNature>
                <directOrIndirectOwnership>
                    <value>D</value>
                </directOrIndirectOwnership>
            </ownershipNature>
        </derivativeTransaction>
        <derivativeTransaction>
            <securityTitle>
                <value>Stock Option</value>
            </securityTitle>
            <conversionOrExercisePrice>
                <value>7.16</value>
            </conversionOrExercisePrice>
            <transactionDate>
                <value>2004-12-20</value>
            </transactionDate>
            <deemedExecutionDate>
                <value>2004-12-20</value>
            </deemedExecutionDate>
            <transactionCoding>
                <transactionFormType>4</transactionFormType>
                <transactionCode>M</transactionCode>
                <equitySwapInvolved>0</equitySwapInvolved>
            </transactionCoding>
            <transactionAmounts>
                <transactionShares>
                    <value>2000</value>
                </transactionShares>
                <transactionPricePerShare>
                    <value>7.16</value>
                </transactionPricePerShare>
                <transactionAcquiredDisposedCode>
                    <value>D</value>
                </transactionAcquiredDisposedCode>
            </transactionAmounts>
            <exerciseDate>
                <value>2004-12-19</value>
            </exerciseDate>
            <expirationDate>
                <value>2011-12-19</value>
            </expirationDate>
            <underlyingSecurity>
                <underlyingSecurityTitle>
                    <value>NovaStar Financial, Inc. Common Stock</value>
                </underlyingSecurityTitle>
                <underlyingSecurityShares>
                    <value>2655</value>
                    <footnoteId id="F1"/>
                </underlyingSecurityShares>
            </underlyingSecurity>
            <postTransactionAmounts>
                <sharesOwnedFollowingTransaction>
                    <value>37000</value>
                </sharesOwnedFollowingTransaction>
            </postTransactionAmounts>
            <ownershipNature>
                <directOrIndirectOwnership>
                    <value>D</value>
                </directOrIndirectOwnership>
            </ownershipNature>
        </derivativeTransaction>
    </derivativeTable>

    <footnotes>
        <footnote id="F1">655 DERs (dividend equivalent rights) attached to $7.16 options</footnote>
    </footnotes>

    <ownerSignature>
        <signatureName>Michael L. Bamburg</signatureName>
        <signatureDate>2004-12-21</signatureDate>
    </ownerSignature>
</ownershipDocument>

</XML>
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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