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Commitment Letter - GE Capital Corp., NovaStar Financial Inc. and Stifel, Nicolaus & Co. Inc.

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                                                                      GE Capital
-------------------------------------------------------------------------------
                                        Equity Capital Group
                                        General Electric Capital Corporation
                                        260 Long Ridge Road, Stamford, CT  05927
                                        203-357-3100



                                October 3, 1996

NovaStar Financial, Inc.
1900 W. 47th Place
Westwood, Kansas 66205

Stifel, Nicolaus & Company, Incorporated
500 North Broadway
St. Louis, Missouri 63102

Gentlemen:

        You have advised General Electric Capital Corporation ("GE Capital") 
that NovaStar Financial, Inc. (the "Company") is seeking to consummate a 
transaction to raise $15 million to $45 million of equity capital. We have 
reviewed the information provided by you in connection with this proposed 
investment. Based on the information that you have provided to date, and our 
understanding of the transaction, GE Capital is pleased to issue its commitment 
to invest $10 million in the Company, subject to the terms and conditions 
contained in the term sheet attached hereto as Annex A (the "Term Sheet") and 
included herein by reference and the following additional terms and conditions:

        (i) The Company will provide evidence satisfactory to GE Capital as to 
its legal, capital and tax structure and ownership, and copies of all documents,
as GE Capital may reasonably request;

        (ii) The Company will be in compliance with all applicable federal, 
state and local laws and regulations;

        (iii) All governmental consents and regulatory approvals and third party
consents, if any, necessary to consummate the proposed transaction shall have 
been obtained in form satisfactory to GE Capital; and

        (iv) There will exist no litigation which could reasonably be expected 
to have a material adverse effect on the financial condition, business, assets, 
operations or prospects of the Company, or that challenges the transaction 
contemplated hereby.




<PAGE>
 
        This Commitment Letter is being delivered to you on the understanding 
and on the condition that neither this Commitment Letter nor its substance shall
be disclosed publicly or privately by either Stifel, Nicolaus & Company, 
Incorporated or the Company, except that this Commitment Letter may be disclosed
to those individuals who are, or upon consummation of the transaction
contemplated hereby will be, officers, employees or advisors of the Company who
have a need to know of it as a result of their being specifically involved in
the transaction contemplated hereby and then only on the condition that such
matters may not, except as required by law, be further disclosed. Except as
specifically permitted by the foregoing sentence, none of such persons shall,
except as required by law, use the name of or refer to GE Capital or any of its
affiliates, in any disclosure made in connection with the transaction
contemplated hereby without the prior written consent of GE Capital. Following
your acceptance of this Commitment Letter, reference may be made to this
Commitment Letter in the Private Placement Memorandum for the transactions
contemplated hereby provided that GE Capital reasonably approves of such
disclosure of this letter.

        The Company agrees to indemnify and hold harmless GE Capital, its 
affiliates and their respective officers, directors, employees, attorneys and 
agents, and all persons controlling any of them or any of their affiliates 
within the meaning of the Securities Act of 1933 or the Securities Exchange Act 
of 1934 (all such persons being hereinafter referred to as "Indemnified 
Persons"), whether or not the transaction contemplated hereby is consummated, 
from and against all claims, losses, damages, liabilities or expenses of any 
kind or nature whatsoever that may be incurred by or asserted against or involve
any Indemnified Person in any and all actions, suits, proceedings (including any
investigations or inquiries) or claims with respect to this Commitment Letter or
the transaction contemplated hereby (whether or not consummated), or the 
preparation, execution and delivery of this Commitment Letter and the 
documentation contemplated hereby, subject to the limitation on the 
reimbursement of legal fees in connection with such documentation as provided in
the Term Sheet and exclusive of any loss resulting solely from a decline in 
value of the Units purchased by GE Capital; and, upon demand by GE Capital, to 
pay or reimburse any such Indemnified Person for any reasonable legal or other 
expenses incurred in connection with investigating, defending or preparing to 
defend or participating in any such action, suit, proceeding (including any 
inquiry or investigation) or claim, whether commenced or threatened, it being 
understood that GE Capital shall have the right to select its own counsel in 
connection with such matters; provided, that the Company shall not be 
responsible to any such Indemnified Person to the extent that any such losses, 
damages, liabilities or expenses are determined by a final judgment of a court 
of competent jurisdiction to be attributable  solely to the gross negligence or 
willful misconduct of such Indemnified Person. Under no circumstances shall GE 
Capital or any other Indemnified Person be responsible for or liable to any 
other party hereto or to any other person for consequential, indirect, punitive 
or exemplary damages which may be alleged as a result of or in connection with 
this Commitment

                                       2

<PAGE>
 
Letter or the transaction contemplated hereby. The indemnification provisions
set forth herein shall apply whether or not any Indemnified Person is a party to
any such action, suit, proceeding or claim, and are expressly intended to cover,
but not be limited to, reimbursement of legal and other expenses, including
expenses incurred in depositions or other discovery proceedings. The indemnity
obligations hereunder shall be in addition to, and not in limitation of, any
other liability or obligations that the Company or any other person or entity
may have to any indemnified Person, at common law or otherwise, including but
not limited to any obligation of contribution.

        GE Capital's offer of this commitment shall expire at the close of 
business on October 7, 1996 unless accepted by you on or prior to such date. To 
accept this offer, we ask that you return to GE Capital an executed copy of this
letter. Once accepted by you, GE Capital's commitment set forth herein shall 
expire at 5:00 p.m. on November 11, 1996, unless the transaction contemplated 
hereby shall have been consummated. Notwithstanding the expiration of GE 
Capital's commitment hereunder, the obligations set forth herein with respect to
confidentiality and indemnification shall survive such expiration.

        This letter: (i) may be executed in counterparts, each of which shall be
deemed an original and all of which counterparts shall constitute one and the 
same document; (ii) shall be governed by, and construed and enforced in 
accordance with, the laws of the State of New York without regard to the 
principles thereof regarding conflict of laws; (iii) supersedes any and all 
discussions, negotiations, understandings or agreements, written or oral, 
expressed or implied, between us regarding the transaction contemplated hereby; 
and (iv) may not be contradicted by evidence of any actual or alleged prior, 
contemporaneous or subsequent understandings or agreements of the parties 
written or oral, expressed or implied, other than a writing which expressly 
amends or supersedes this letter. There are no unwritten understandings or 
agreements between the parties. THE PARTIES HAVING DETERMINED IT TO BE IN THEIR 
BEST INTERESTS TO SECURE FOR THEMSELVES THE ADVANTAGES OF THE BEST ASPECTS OF 
EACH OF ARBITRATION AND THE JUDICIAL SYSTEM, BY PRESERVING FOR THEMSELVES THE 
RIGHT OF TRIAL BY JUDGE ALONE, EACH PARTY HEREBY EXPRESSLY WAIVES ANY RIGHT TO 
TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER THIS
COMMITMENT LETTER, ANY TRANSACTION RELATING HERETO, OR ANY OTHER INSTRUMENT, 
DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH WHETHER 
SOUNDING IN CONTRACT, TORT OR OTHERWISE.

                                       3
<PAGE>
 
        We look forward to working with you to bring the proposed transaction to
completion.


                                     Very truly yours,


                                     GENERAL ELECTRIC CAPITAL
                                       CORPORATION

                                     By: /s/ JEROME C. MARCUS
                                         --------------------------------------
                                         Name:  Jerome C. Marcus
                                         Title: Department Operations Manager


Accepted this       day of October, 1996:

NOVASTAR FINANCIAL, INC.

By:
   ------------------------------
Name:
Title:


STIFEL, NICOLAUS & COMPANY, INCORPORATED

By:
   -------------------------------
Name:
Title: 


                                       4
  
<PAGE>
 
                                    Annex A
                           NovaStar Financial, Inc.
                      Summary of Proposed Principal Terms
                      Class A Convertible Preferred Stock
                      -----------------------------------


Issuer:        NovaStar Financial, Inc.(the "Company")

Purchaser:     General Electric Capital Corporation ("GE Capital") or an 
               affiliate of GE Capital.

Amount:        $10 million for 666,666 Units at $15 per Unit, provided that the 
               GE Capital minimum condition is satisfied.

Issue:         All of the units (the Units") are being offered by the Company. 
               The closing of this offering (the "Offering" is expected to occur
               on or about [November 8, 1996] and will involve at least
               1,000,000. Units ($15 million, the Minimum Offering") excluding
               Units purchased by Purchaser, and not exceed between 3,000,000
               Units and 3,333,333 Units (between $45 million and $50 million;
               the "Maximum Offering"). If the maximum amount of the offering ha
               not been attained at the time of such closing, one or more
               additional closings ("Additional Closings') may be affected, but
               in no event will the last closing occur later than December 31,
               1996. It is understood that it is a condition to the purchase
               hereunder that at least, 1,666,666 Units ($25 million), including
               the Units purchased by Purchaser, be sold.

               Each Unit consists of one share of Class A Convertible Preferred 
               Stock. ("the Preferred Stock") and one Stock Purchase Warrant
               ("Warrant").


Issue Capit-   The Company's Common Stock outstanding shall be equal to 100,000 
alization      share plus 5% of the total amount of Units issued in excess of 
Common Stock   1,000,000 Units ("Founders' Stock"), and purchased by the 
and Founders   Founders for $.01 per share. The Founders intend to also purchase
Units:         an amount closely approximately 40.000 Units issued in this 
               Offering which shall be paid for which cash by the Founders shall
               purchase 100,000 Units plus outlined in "Issue" above, the 
               Founder shall purchase





          

       
       
             

<PAGE>
 
NovaStar Financial, Inc.
Page 2
October 3, 1996


                                through a full recourse Company forgivable loan,
                                carrying an 8% fixed interest rate with one year
                                pay-in-kind interest and current interest
                                payments thereafter, to be secured by the Units.
                                Further, to assist the Founders with the tax
                                consequences related to possible debt
                                forgiveness, the Company shall make a full
                                recourse loan to the Founders with a floating
                                interest rate, with interest paid currently at
                                Prime plus 2.5%. Such loan shall be
                                collateralized by the Units and be payable upon
                                the earlier of (i) the Founders selling the
                                related Units or shares thereof, or (ii) upon
                                the Founders leaving employment of the Company.

Issuer Capitalization-
Options:                        The Company shall reserve shares of Common Stock
                                for issuance upon the exercise of Options
                                granted to employees, officers and directors,
                                the number of which shall not exceed (a) 10% of
                                the Units issued in this Offering plus the
                                number of Founders' Forgivable Loan Units at any
                                time prior to a Qualified IPO, and (b) 10% of
                                the Company's outstanding Common Shares at any
                                time after a Qualified IPO. The number of such
                                options granted to the Founders in conjunction
                                with the closing of this Offering shall not
                                exceed 133,000 plus 6.7% of the Units issued in
                                this Offering in excess of 1,000,000 Units. Up
                                to 50,000 additional options shall be issued to
                                current and future employees of the Company, not
                                to include the Founders, and shall be issued at
                                exercise prices which range from approximately
                                $1 to $3 per share, with Dividend Equivalent
                                Rights ("DERs"). The options issued to Messrs.
                                Anderson and Hartman upon closing of the
                                Offering shall have an exercise price of $15 per
                                share. Such options issued to Messrs. Anderson
                                and Hartman shall vest upon a Qualified IPO and
                                remain restricted stock (i.e., not publicly
                                transferable) for a minimum of two years
                                following the Qualified IPO. Other than the
                                50,000 DERs mentioned above, the Company shall
                                not issue any other DERs. In addition, no stock
                                awards shall be issued by the Company.

Placement Agent
Warrants:                       Warrants may be granted to Stifel, Nicolaus &
                                Company, Incorporated in an amount equal to 3%
                                of the total Units issued in the Offering. The
                                exercise price for such Warrants shall be

<PAGE>
 
NovaStar Financial, Inc.
Page 3
October 3, 1996


                                $15/warrant share. In addition, Stifel, Nicolaus
                                & Company. Incorporated shall be paid a cash fee
                                at closing in an amount not to exceed 7% of the
                                total gross proceeds from the sale of Units in
                                the Offering.

Use of Proceeds:                To fund, along with proceeds from short-term and
                                other collateralized borrowings, the Company's
                                origination of and investment in residential 
                                sub-prime mortgage loans and residential
                                mortgage-backed securities. Pending completion
                                of the purchase of such assets, the proceeds of
                                the Offering may be invested in short-term
                                investments.

Dividends:                      The Company intends to distribute to
                                stockholders each year substantially all of its
                                net taxable income so as to qualify for the tax
                                benefits accorded to REITs under the Code. The
                                Company intends to make dividend distributions
                                at least quarterly. It is anticipated that the
                                first dividend distribution to stockholders
                                will be made promptly after the first full
                                fiscal quarter following completion of this
                                offering.

                                Until such time that a Conversion event has
                                taken place, all net income/dividends will be
                                paid to the Preferred Stock.

Warrants:                       Each Warrant entitles the holder thereof to
                                purchase one share (a "Warrant Share") of the
                                Company's Common Stock. The Warrants will be
                                exercisable within six months of a Qualified IPO
                                at an exercise price of $15 per share ("Warrant
                                Exercise Price") and remain exercisable for
                                three years following the initial exercise date.
                                The Warrants will be deemed exercised upon a
                                sale or liquidation of the Company which yields
                                a common stock distribution in excess of $15 per
                                share.

                                Warrants may be exercised by (i) paying the
                                Warrant Exercise Price in cash or (ii)
                                surrendering the appropriate number of common
                                shares or Warrants, where the value of such
                                common shares shall be the then market value of
                                the Company's common stock and the value of such
                                Warrants shall be the then market value of the
                                Company's common stock less the Warrant Exercise
                                Price.

<PAGE>
 
NovaStar Financial, Inc.
Page 4
October 3, 1996



Governance Provisions:

Voting Rights:                  Preferred Stockholders shall have the right to
                                vote with the common shareholders on all matters
                                submitted to a vote of shareholders of the
                                Issuer.

                                The affirmative vote of two-thirds of the
                                Preferred Stock outstanding is necessary for the
                                issuance of securities senior to or on a parity
                                with the Preferred Stock, the authorization or
                                issuance of securities convertible into such
                                senior or parity securities, the amendment of
                                the Certificate of Incorporation so as to
                                adversely affect the Preferred Stock, the
                                amendment of any of the terms of the Preferred
                                Stock, or the waiver of any other covenants and
                                other deal-specific class voting provisions.
                                This does not pertain to the initial public
                                offering. Shares of Class A Convertible
                                Preferred stock may be issued through permitted
                                Additional Closings.

Board
Representation:                 Purchaser shall have the right to appoint 1
                                director out of a total of no more than 6
                                authorized directors so long as it owns at least
                                10% of the outstanding common shares, assuming a
                                conversion of the Preferred Stock and full
                                exercise of all Warrants. Such director shall be
                                reasonably acceptable to the Company; it being
                                further understood that GE Capital will put
                                forth Jenne Britell as its nominee to represent
                                GE Capital on the Company's Board. A majority of
                                the Board members will be independent, non-
                                management directors. Moreover, such GE Capital
                                director shall be considered an independent
                                director.

                                In the event Purchaser does not appoint a
                                director, Purchaser shall have board observation
                                rights which will include the right to receive
                                all information provided to board members
                                (including all committees of the board) and
                                reimbursement of related expenses. The
                                Purchaser's board observation rights shall
                                terminate when the Purchaser has sold 80% of its
                                investment assuming full exercise of all
                                Warrants.

                                The reasonably acceptable GE Capital designee
                                shall be elected to the Board for a three-year
                                term prior to or simultaneously with the closing
                                of the Offering. The Founders shall agree that
                                so long as GE Capital is entitled to a director,
                                the Founders will vote as





<PAGE>
 
NovaStar Financial, Inc.
Page 5
October 3, 1996

                                directors and stockholders to nominate and to
                                elect such reasonably acceptable GE Capital
                                designee to the Board.

Special Meetings:               A Special Meeting of the shareholders may be 
                                called at the request of shareholders holding a
                                minimum of 20% of the Company's outstanding
                                shares or by a director. The Board of Directors
                                agrees that it will implement any resolution
                                adopted by a majority vote of the Company's
                                shareholders to sell or liquidate the Company.

Redemption Provisions:

Holder's Option to Redeem:      In the event of a change of control, a merger, 
                                consolidation or other combination by the
                                Company, or transfer of all or substantially all
                                of the Company's assets, the Purchaser shall
                                have the option to receive the greater of: (i)
                                what the common stock would have received if
                                conversion had occurred prior to the record
                                date, or (ii) 100% of the Liquidation Preference
                                of the Preferred Stock as provided under the
                                "Liquidation Preference" clause below.

Conversion Terms:

Automatic Conversion:           Shares of Preferred Stock will convert to the 
                                Company's Common Stock, par value $.01 per share
                                ("Common Stock"), upon the closing of a firm
                                commitment underwriting by Stifel, Nicolaus &
                                Company, Incorporated or another nationally
                                recognized investment banking firm for an
                                initial public offering of the Common Stock
                                resulting in aggregate gross proceeds to the
                                Company of at least $20 million at a minimum
                                price of $15 per share ("a Qualified IPO"). The
                                size and minimum price of the Offering can only
                                be reduced and still be deemed a Qualified IPO
                                by an affirmative vote of the holders of two-
                                thirds of the Preferred Stock. Any such vote to
                                reduce the minimum price shall constitute a
                                waiver of anti-dilution protection with respect
                                to the Preferred Stock and Warrants resulting
                                from such issuance at a price below $15 per
                                share.

<PAGE>
 
NovaStar Financial, Inc.
Page 6
October 3, 1996


Optional Conversion:            Three years following the last closing of the 
                                Offering at the option of the holder.

Conversion Price:               Each share of Preferred will convert into common
                                on a one-for-one basis provided that such
                                conversion price shall be appropriately adjusted
                                for any stock splits or similar transactions and
                                is subject to Anti-Dilution Provisions included
                                herein.

Covenants/Restrictions on Issuer:

Covenants:                      The Purchase Agreement and/or the Certificate of
                                Incorporation will contain usual and customary
                                covenants for this type of investment including,
                                but not limited to: (i) prohibitions on Common
                                Stock dividends until a Conversion event; (ii)
                                information requirements until a Qualified IPO;
                                (iii) approval by a majority of independent
                                directors of material increases in management
                                compensation; (iv) restrictions on affiliated
                                transactions; (v) prohibitions on entering
                                unrelated lines of business (including, but not
                                limited to, investments in commercial and multi-
                                family mortgages and mortgage backed securities
                                or other REITs); (vi) maintenance of Key Man
                                life insurance (as required under Conditions of
                                Purchase and Sale) for five years; (vii)
                                maintenance of the Company's status as a REIT;
                                and (viii) approval by a majority of the
                                independent directors for any changes in the
                                capital allocation guidelines and hedge
                                policies.

                                Following a Qualified IPO or, in the case of 
                                clauses (v) and (vi) above, one year following
                                Qualified IPO, the provisions of clauses (iii)
                                through (vii) above may be modified or waived by
                                a majority of independent directors. During such
                                one-year period, clauses (v) and (vi) may be
                                waived by a unanimous vote of the Board of
                                Directors.


<PAGE>
 
NovaStar Financial, Inc.
Page 7
October 3, 1996

Other:

Indemnities:                    The Company shall indemnify Purchaser and its 
                                directors, officers and employees against all
                                losses and damages resulting from the
                                transaction other than such losses and damages
                                which arise out of Purchaser's gross negligence
                                or willful misconduct.

Representations and
Warranties:                     Customary representations relating to 
                                organization and qualification, authorization,
                                execution and delivery, validity and
                                enforceability of agreements, issuance of the
                                Preferred Stock, actions pending, compliance
                                with laws and environmental regulations,
                                governmental consent, insurance adequacy, no
                                conflict with agreements and charter provisions,
                                capitalization, taxes ERISA, and no material
                                adverse change.

Anti-Dilution Provisions:       Conversion rights and the Warrant Exercise Price
                                will be adjusted to provide standard anti-
                                dilution protection, including adjustments for
                                extraordinary dividends, recapitalization, or
                                subdivisions, combinations or reclassifications
                                of common stock, issuance of shares at prices
                                below the higher of (a) $15 per share, and (b)
                                fair market value subject, however, to the
                                provisions relating to a Qualified IPO.

Registration Rights:            GE Capital and each other purchaser of at least 
                                5% of the Units in this Offering shall be
                                entitled to unlimited piggyback registration
                                rights provided that to the extent that the
                                underwriters require a "cut-back," GE Capital's
                                and such purchasers' shares shall be cut back
                                before the Company's, except that to the extent
                                the Company has or would be issuing more than
                                $50 million of securities in either of its first
                                two offerings the Company shall be cut back
                                first as to any securities in excess of $50
                                million. Such registrations and the ones
                                referred to below will be at the expense of the
                                Company, except that underwriting commissions
                                will be borne pro rata by the holders.

                                The Company will file a shelf registration at 
                                the earlier of (i) six months after the
                                Qualified IPO, and (ii) twenty months following
                                the closing date provided that if a Qualified
                                IPO occurs within such 20-month period, the
                                shelf registration will be filed six months
                                thereafter. Such shelf registration shall remain
                                open for three years
<PAGE>
 
NovaStar Financial, Inc.
Page 8
October 3, 1996


                                from the closing date of this Offering. Each of 
                                GE Capital and each other purchaser of at least
                                5% of the Units in this Offering shall further
                                have two demand registration rights following
                                the end of the shelf registration period to the
                                extent necessary for it to sell its shares in
                                compliance with applicable securities laws. GE
                                Capital shall not have such demand registration
                                rights if in the written opinion of the
                                Company's counsel, which opinion must be
                                reasonably acceptable to GE Capital and its
                                counsel, such registration is not necessary for
                                GE Capital to sell its shares in the manner
                                contemplated so as to comply with applicable
                                securities laws. The shelf registration
                                applicable to the shares issuable upon exercise
                                of the Warrants shall also be a primary
                                registration and shall remain effective so long
                                as the Warrants are outstanding. If requested by
                                GE Capital, the Company's management will
                                conduct roadshows to assist GE Capital in
                                selling its shares under the shelf offering or
                                demand offering.

Other Provisions:

Conditions of Purchase and
Sale:                           The purchase and sale of the Preferred Stock 
                                would be subject to certain conditions,
                                including execution and delivery of all
                                necessary documentation in form and substance
                                satisfactory to GE Capital, satisfaction with
                                the Certificate of Incorporation and bylaws of
                                the Company, the satisfactory completion of all
                                business, financial and legal due diligence, the
                                receipt of opinions of the Company's counsel
                                satisfactory to the Purchaser (including as to
                                REIT status), the absence of the occurrence of
                                any material adverse event, receipt of all
                                agreements with management (including non-
                                competition agreements), all stock incentive
                                plans and other employee benefit plans in form
                                and substance satisfactory to GE Capital, the
                                obtaining of Key Man life insurance policies on
                                both Lance Anderson and Scott Hartman in the
                                amount of $5 million per individual, the
                                election of GE Capital's designee to the Board
                                for a three-year term, and receipt of a
                                satisfactory waiver or opinion of counsel so
                                that the restrictions on maximum ownership of
                                shares and the "Control Shares Provision" of
                                Maryland law shall not apply to GE Capital. It
                                is understood that no investor in this Offering
                                shall be offered any investment terms other than
                                as previously disclosed to GE Capital and set
                                forth in the written information previously
                                provided to GE Capital.
<PAGE>
 
                    [LETTERHEAD OF GE CAPITAL APPEARS HERE]

November 8, 1996

NovaStar Financial, Inc.
1900 W. 47th Place
Westwood, Kansas 62205

Stifel, Nicolaus & Company, Incorporated
500 North Broadway
St. Louis, Missouri 63102

Gentlemen:

        Reference is made to the letter between us dated October 3, 1996,
pursuant to which General Electric Capital Corporation ("GE Capital"), issued
its commitment to invest $10 million (the "Commitment") in NovaStar Financial,
Inc. (the "Company"), subject to the terms and conditions contained therein (the
"Commitment Letter").

        The Commitment Letter is hereby amended by changing the November 11,
1996 expiration date set forth in the first paragraph of page 2 thereof to
December 11, 1996. Further, the Company hereby confirms that if GE Capital
subscribes for $10,000,000 of the Units of the Company as contemplated by the
Commitment Letter, the Company will accept such subscription in full in
accordance with the terms of the Commitment Letter. Except as amended hereby,
the terms of the Commitment Letter shall remain in full force and effect.

        This letter: (i) shall become effective only if accepted by you by 
signing and returning a copy thereof to GE Capital by the close of business on 
November 12, 1996, (ii) may be executed in counterparts, each of which shall be 
deemed an original and all of which counterparts shall constitute one and the 
same document, and (iii) shall be governed by, and construed and enforced in 
accordance with, the laws of the State of New York without regard to the 
principles thereof regarding conflict of laws.

                                  Very truly yours,

                                  GENERAL ELECTRIC CAPITAL
                                    CORPORATION

                                  By:  /s/ JEROME C. MARCUS
                                     --------------------------------- 
                                     Name:  Jerome C. Marcus 
                                     Title: Department Operations Manager

Accepted this 12th day of November, 1996:

NOVASTAR FINANCIAL, INC.

By:  /s/ W. LANCE ANDERSON
    -------------------------------------
    Name:  W. Lance Anderson
    Title: President

STIFEL, NICOLAUS & COMPANY, INCORPORATED

By: /s/ PATRICK KOSTER
    --------------------------------------
    Name:  Patrick Koster
    Title: Vice President