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Warrant Agreement - NovaStar Financial Inc.

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                           NOVASTAR FINANCIAL, INC.

                               WARRANT AGREEMENT


          This WARRANT AGREEMENT (the "Agreement"), dated as of December 9,
1996, is made by and between NovaStar Financial, Inc., a Maryland corporation
(the "Company"), as issuer of the Warrants, and the Holders of the Warrants
acting through the Company as the initial warrant agent (together with successor
warrant agents, if any, the "Warrant Agent").

          WHEREAS, the Company and the Warrant Agent desire to set forth certain
terms and instructions regarding the issuance, division, transfer and exercise
of the Company's Stock Purchase Warrants (the "Warrants"), to be issued to (i)
each Initial Purchaser of the Units in the Offering (as hereinafter defined) and
(ii) the Placement Agent, as partial payment of its sales fee;

          NOW, THEREFORE, in consideration of the mutual agreements contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto, intending to be
legally bound hereby, agree as follows:

SECTION 1.    CERTAIN DEFINITIONS

          Unless the context otherwise requires, the terms set forth below shall
have the meanings herein specified:

          "Affiliate" of any specified Person means any other Person, which,
           ---------                                                        
directly or indirectly, controls, is controlled by or is under direct or
indirect common control with, such specified Person.  For the purposes of this
definition, "control" when used with respect to any Person means the power to
direct or cause the direction of the management or policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise, and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.

          "Common Stock" shall mean the Common Stock, par value $.01 per share,
           ------------                                                        
of the Company.

          "Conversion Event" means, with respect to each share of Preferred
           ----------------                                                
Stock, the conversion thereof into Common Stock upon the first to occur of (i)
the closing of a firm commitment underwritten initial public offering of Common
Stock resulting in aggregate gross proceeds to the Company of at least $20
million and at a price per share of at least $15 or such lesser amount of
proceeds and/or lower price per share as may be approved by two-thirds of the
voting power of the Preferred Stock, or (ii) at any time after three years from
the last closing of the Offering, upon the election of the holder.

          "Conversion Exercise Price" shall initially mean $15 per share of
           -------------------------                                       
Common Stock, and shall be adjusted and readjusted from time to time in
accordance with the provisions of Section 9.1 of this Agreement.

                                       1
<PAGE>
 
          "Current Price" with respect to any security on any day shall mean the
           -------------                                                        
closing sale price, regular way, on such day or, in case no such sale takes
place on such day, the average of the reported closing bid and asked prices,
regular way, in each case on the Nasdaq National Market or if such security is
not quoted on the Nasdaq National Market, on the principal national securities
exchange or quotation system on which such security is quoted or listed or
admitted to trading or, if not quoted or listed or admitted to trading on any
national securities exchange or quotation system, the average of the closing bid
and asked prices of such security on the over-the-counter market on the day in
question as reported by the National Quotation Bureau Incorporated, or a similar
generally accepted reporting service, or, if the security is not publicly
traded, a price determined reasonably and in good faith by the Board of
Directors including a majority of the Independent Directors (such determination
to be conclusive and evidenced in a resolution adopted by the Board of
Directors).

          "Detachment Date" shall have the meaning set forth in Section 3.2
           ---------------                                                 
hereof.

          "Document Supplement" shall mean the package furnished to each
           -------------------                                          
purchaser of Units in the Offering containing the Amended and Restated Articles
of Incorporation of the Company, the Articles Supplementary for the Preferred
Stock, the form of this Agreement, the form of Warrant, the form of Purchase
Terms Agreement and the form of Registration Rights Agreement.

          "Exercise Price" shall mean $15 per Warrant, provided, however, that
           --------------                              --------  -------      
the Company reserves the right to reduce such price at any time following a
Qualified IPO, in its sole discretion and for such limited periods as it may
from time to time determine, upon no less than 10 days nor more than 60 days
prior written notice to the Holders, provided, however, that no such reduction
may be effected without the approval of a majority of the Independent Directors.

          "Expiration Date" shall mean 5:00 p.m. Eastern Standard Time on the
           ---------------                                                   
third anniversary of the date the Warrants become exercisable.

          "Founders" means W. Lance Anderson and Scott F. Hartman.
           --------                                               

          "Fundamental Change" means, with respect to the Company, the
           ------------------                                         
occurrence of any transaction to which the Company is a party pursuant to which
a majority of the Preferred Stock or Common Stock is converted into the right to
receive other securities, cash or other property (including without limitation
any consolidation of the Company with, or merger of the Company into, any other
Person, any merger of another Person into the Company (other than a merger which
does not result in a reclassification, conversion, exchange or cancellation of
outstanding shares of Preferred Stock or Common Stock of the Company), a
Liquidation of the Company or any sale or transfer of all or substantially all
of the assets of the Company or any compulsory share exchange), or any
reclassification of the Company's Common Stock pursuant to which stockholders
receive any cash or property other than shares of its capital stock, but
excluding the conversion of the Preferred Stock into Common Stock pursuant to a
Conversion Event.

          "Holder" shall mean a registered owner of the Warrants.
           ------                                                

          "Independent Directors" shall have the meaning set forth in the
           ---------------------                                         
Company's Bylaws.

                                       2
<PAGE>
 
          "Initial Purchaser" shall mean a purchaser of Units directly from the
           -----------------                                                   
Company in the Offering and the Founders.

          "Liquidation" shall mean the voluntary or involuntary liquidation,
           -----------                                                      
dissolution or winding up of the affairs of the Company.

          "Nasdaq National Market" shall mean the National Market System of the
           ----------------------                                              
National Association of Securities Dealers, Inc.

          "Offering" shall mean the offering of the Units by the Company
           --------                                                     
pursuant to the Private Placement Memorandum and the Purchase Terms Agreement.

          "Person" means any individual, corporation, limited liability company,
           ------                                                               
partnership, joint venture, association, business trust, joint-stock company,
trust, unincorporated organization or government or agency or political
subdivision thereof.

          "Placement Agent" shall mean Stifel, Nicolaus & Company, Incorporated.
           ---------------                                                      

          "Preferred Stock" means the Company's Class A Convertible Preferred
           ---------------                                                   
Stock, par value $.01 per share.

          "Private Placement Memorandum" means the Private Placement Memorandum,
           ----------------------------                                         
dated October 15, 1996, as supplemented on November ___, 1996, the Document
Supplement and all other amendments and supplements thereto, pursuant to which
the Company is offering for sale up to 3,333,333 Units.

          "Purchase Terms Agreement" shall mean the Purchase Terms Agreement,
           ------------------------                                          
dated ___________, 1996, by and between the Company and the Placement Agent.

          "Purchase Warrant" shall mean the Warrants being acquired by the
           ----------------                                               
Initial Purchasers as part of the Units.

          "Qualified IPO" shall mean a firm commitment underwritten initial
           -------------                                                   
public offering of Common Stock resulting in aggregate gross proceeds to the
Company of at least $20 million and at a price per share of at least $15 or such
lesser amount of proceeds and/or lower price per share as may be approved by
two-thirds of the voting power of the Preferred Stock.

          "Registration Rights Agreement" shall mean the Registration Rights
           -----------------------------                                    
Agreement, dated  December 9, 1996, by and between the Company and the Placement
Agent.

          "SEC" shall mean the Securities and Exchange Commission.
           ---                                                    

          "Securities Act" shall mean the Securities Act of 1933, as amended,
           --------------                                                    
and the rules and regulations of the SEC promulgated thereunder.

          "Shelf Registration Statement" shall mean the shelf registration
           ----------------------------                                   
statement to be filed with the SEC pursuant to Rule 415 under the Securities Act
as required by the Registration Rights Agreement.

                                       3
<PAGE>
 
          "Start Date" shall have the meaning set forth in Section 4.1 hereof.
           ----------                                                         

          "Trading Day" shall mean (x) if the applicable security is quoted on
           -----------                                                        
the Nasdaq National Market, a day on which a trade may be made on the Nasdaq
National Market, (y) if the applicable security is listed or admitted for
trading on the national securities exchange, a day on which such national
securities exchange is open for business or (z) if the applicable security is
not otherwise listed, admitted for trading or quoted, any day other than a
Saturday or Sunday or a day on which banking institutions in the State of New
York are authorized or obligated by law or executive order to close.

          "Unit" shall mean a unit consisting of one share of Preferred Stock
           ----                                                              
and one Warrant.

          "Warrant" shall mean each Stock Purchase Warrant issued hereunder.
           -------                                                          

          "Warrant Certificate" shall having the meaning set forth in Section
           -------------------                                               
2.1 hereof.

          "Warrant Shares" shall mean the shares of Common Stock and other
           --------------                                                 
consideration, if any, issuable upon exercise of the Warrants, as determined in
accordance with the terms hereof.

SECTION 2.    WARRANT CERTIFICATES

          2.1  Form of Certificates.  Prior to the Detachment Date, beneficial
               --------------------                                           
ownership of each Purchased Warrant shall be evidenced by the Preferred Stock
certificate to which such Warrant relates bearing the legend set forth in
Section 2.3(a) hereof.  Following the Detachment Date, upon tender of the
Preferred Stock certificate bearing the legend set forth in Section 2.3(a)
hereof, a certificate evidencing the related Warrants (the "Warrant
Certificate") shall be issued to the record owner of the Preferred Stock
certificate substantially in the form set forth as Exhibit A hereto, which
Warrant Certificate for the related Warrants shall be marked with the legend set
forth in Section 2.3(b) hereof.  The Warrants being acquired by the Placement
Agent shall be evidenced by Warrant Certificates issued on the closing date or
dates for issuance of Units.  The Warrant Certificate may have such letters,
numbers or other marks of identification or designation and such legends,
summaries or endorsements printed, lithographed or engraved thereon as the
Company may deem appropriate and as are not inconsistent with the provisions of
this Agreement, or as may be required to comply with any law, or with any rule
or regulation made pursuant thereto, or with any rule or regulation of any stock
exchange on which the Preferred Stock, the Common Stock or the Warrants may be
listed, or any inter-dealer quotation system upon which the Preferred Stock, the
Common Stock or the Warrants may be quoted.

          2.2  Execution.  Warrant Certificates shall be executed on behalf of
               ---------                                                      
the Company by its Chairman of the Board, President, Executive or Senior Vice
President, and attested by its Secretary or an Assistant Secretary.  The
signature of any of such officers may be manual or facsimile.  Warrant
Certificates bearing the manual or facsimile signatures of individuals who were
at any time the proper officers of the Company shall bind the Company,
notwithstanding that any of such individuals shall have ceased to hold such
offices prior to the delivery of such Warrant Certificates or did not hold such
offices on the date of this Agreement.

          2.3  Legend.
               ------ 

                                       4
<PAGE>
 
               (a) Prior to the Warrants becoming detached from the Preferred
Stock pursuant to Section 3.2, each Preferred Stock certificate to which a
Warrant is deemed to be attached shall carry a legend as follows:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE INCLUDE THE BENEFICIAL OWNERSHIP
IN A STOCK PURCHASE WARRANT FOR THE LIKE NUMBER OF WARRANT SHARES AS THE NUMBER
OF SHARES OF PREFERRED STOCK SET FORTH ON THE FACE HEREOF, SUBJECT TO
ADJUSTMENTS AS SET FORTH IN THE WARRANT AGREEMENT GOVERNING THE WARRANTS, WHICH
STOCK PURCHASE WARRANT IS HELD BY THE WARRANT AGENT AND IS DEEMED TO BE ATTACHED
HERETO AND IS NOT DETACHABLE HEREFROM NOR EXERCISABLE EXCEPT AS SET FORTH IN THE
WARRANT AGREEMENT.  THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO THE PROVISIONS AND ENTITLED TO THE BENEFITS OF SUCH WARRANT AGREEMENT, A COPY
OF WHICH IS ON FILE AT THE OFFICES OF THE COMPANY AND WILL BE MADE AVAILABLE TO
ANY STOCKHOLDER UPON REQUEST WITHOUT CHARGE.  UPON DETACHMENT OF THE WARRANT
FOLLOWING THE DETACHMENT DATE, A SEPARATE PREFERRED STOCK CERTIFICATE AND A
WARRANT CERTIFICATE REPRESENTING OWNERSHIP OF THE PREFERRED STOCK AND STOCK
PURCHASE WARRANTS, RESPECTIVELY, EVIDENCED BY THIS PREFERRED STOCK CERTIFICATE
WILL BE ISSUED TO THE REGISTERED HOLDER OF THIS PREFERRED STOCK AGAINST TENDER
TO THE COMPANY OF THIS PREFERRED STOCK CERTIFICATE.

               (b) A copy of this Agreement shall be filed with the Secretary of
the Company and shall be kept at its principal executive office. Each Warrant
Certificate shall carry a legend as follows:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE PROVISIONS AND
ENTITLED TO THE BENEFITS OF A WARRANT AGREEMENT, DATED AS OF DECEMBER 9, 1996.
A COPY OF SUCH AGREEMENT IS ON FILE AT THE OFFICES OF THE COMPANY AND WILL BE
MADE AVAILABLE TO ANY WARRANTHOLDER UPON REQUEST WITHOUT CHARGE.

               (c) So long as required thereunder, each Warrant Certificate
(including each Warrant Certificate issued upon the transfer or partial exercise
of any Warrant), each certificate for Common Stock issued upon the exercise of
any Warrant, and each certificate for Preferred Stock or Common Stock issued
upon the transfer of any such Preferred Stock or Common Stock shall be stamped
or otherwise imprinted with the legend required pursuant to Section 1.3 of the
Purchase Terms Agreement.

SECTION 3.    OWNERSHIP, DETACHABILITY, TRANSFER AND EXCHANGE

          3.1  Ownership.  The Warrant Certificates following issuance shall be
               ---------                                                       
numbered and shall be registered in the books of the Company (the "Warrant
Register") maintained at the principal office of the Company at the address
specified in Section 14 hereof.  The Company shall be entitled to treat the
Holder of any Warrant whose name appears in the Warrant Register (or Preferred
Stock register if beneficial ownership of the Warrants is represented by a
Preferred 

                                       5
<PAGE>
 
Stock certificate) as the owner in fact thereof for all purposes
(notwithstanding any notation of ownership or other writing thereon made by
anyone or any notice to the contrary).

          3.2  Detachability.  Each Warrant will become detachable from the
               -------------                                               
share of Preferred Stock offered together with such Warrant as a Unit in the
Offering upon the occurrence of a Conversion Event with respect to such share of
Preferred Stock (the "Detachment Date").  Accordingly, the Detachment Date may
be different for different Warrants, depending upon the date of the Conversion
Event for the related Preferred Stock.  As used herein, the term "Detachment
Date" includes all such dates of detachment.  In addition, the Detachment Date
for the Warrants being issued to the Placement Agent shall be deemed to be their
date of issuance.

          3.3  Transfer.  The Warrants shall be transferable only on the Warrant
               --------                                                         
Register, upon delivery thereof, accompanied by a written instrument or
instruments of transfer in form reasonably acceptable to the Company, duly
executed by the registered Holder or Holders thereof or by the duly appointed
legal representative thereof or by a duly authorized attorney.  Prior to the
Detachment Date, the Warrants shall be transferable only upon transfer of the
Preferred Stock to which they relate, upon delivery of the Preferred Stock
Certificate, accompanied by a written instrument or instruments of transfer in
form reasonably acceptable to the Company, duly executed by the registered
Holder or Holders thereof or by the duly appointed legal representative thereof
or by a duly authorized attorney.  Upon any registration of transfer of
Warrants, the Company shall (i) issue and deliver a new Warrant Certificate (or
new Preferred Stock certificate if prior to the Detachment Date) evidencing the
Warrant or Warrants to the Person entitled thereto and (ii) cancel the
surrendered Warrant Certificate (or surrendered Preferred Stock certificate if
prior to the Detachment Date).  If a Holder desires to transfer a Warrant
bearing legends required pursuant to Section 2.3(c) hereof (other than pursuant
to an effective registration statement under the Securities Act) such Holder may
be required to deliver to the Company a written opinion of counsel, reasonably
satisfactory in form and substance to the Company, that an exemption from the
registration requirements of the Securities Act is available.

          3.4  Exchange.
               -------- 

               (a) Prior to the Detachment Date, each Preferred Stock
certificate evidencing a Warrant or Warrants may be exchanged at the option of
the Holder thereof for another Preferred Stock certificate or certificates of
like tenor and representing in the aggregate a like number of shares of
Preferred Stock and Warrants. Any Holder desiring to exchange such a Preferred
Stock certificate shall make such request in writing delivered to the Company,
and shall surrender the Preferred Stock certificate to be so exchanged at the
principal office of the Company. Thereupon, the Company shall (i) issue and
deliver to the Person entitled thereto a new Preferred Stock certificate or
certificates as so requested and (ii) cancel the Preferred Stock certificate
surrendered for exchange.

               (b) On and after the Detachment Date, each Preferred Stock
certificate evidencing a Warrant or Warrants may be exchanged at the option of
the Holder thereof for (i) a Preferred Stock certificate or certificates not
evidencing a Warrant or Warrants and (ii) a Warrant Certificate or Certificates
representing in the aggregate a like number of Warrants evidenced by

                                       6
<PAGE>
 
such surrendered Preferred Stock certificate. Any Holder desiring to exchange
such a Preferred Stock certificate shall make such request in writing delivered
to the Company, and shall surrender the Preferred Stock certificate to be so
exchanged at the principal office of the Company. Thereupon, the Company shall
(i) issue and deliver to the Person entitled thereto a new Preferred Stock
certificate or certificates and a new Warrant Certificate or Certificates as so
requested and (ii) cancel the Preferred Stock certificate surrendered for
exchange.

               (c) Each Warrant Certificate may be exchanged at the option of
the Holder thereof for another Warrant Certificate or Certificates of like tenor
and representing in the aggregate a like number of Warrants. Any Holder desiring
to exchange a Warrant Certificate shall make such request in writing delivered
to the Company, and shall surrender the Warrant Certificate to be so exchanged
at the principal office of the Company. Thereupon, the Company shall (i) issue
and deliver to the Person entitled thereto a new Warrant Certificate or
Certificates as so requested and (ii) cancel the Warrant Certificate surrendered
for exchange.

SECTION 4.    TERM OF WARRANTS; EXERCISE OF WARRANTS

          4.1  Term of Warrants.  Subject to the terms of this Agreement, each
               ----------------                                               
Warrant may be exercised at any time beginning on the date (the "Start Date") of
the earlier to occur of (i) the effectiveness of the Shelf Registration
Statement, or (ii) six (6) months after the closing of a Qualified IPO, in whole
or in part, from time to time, at the option of the Holder thereof, until the
Expiration Date.  Each Warrant, when exercised, will entitle the Holder thereof
to receive the number of Warrant Shares set forth on such Warrant upon payment
of the Exercise Price, provided, however, that the number of Warrant Shares
                       --------  -------                                   
actually issued upon payment of the $15 exercise price shall be subject to
adjustment as set forth in Section 9.1.

          4.2  Exercise of Warrants.  Each Holder of a Warrant Certificate may
               --------------------                                           
exercise such related Warrants upon (i) surrender of the Warrant Certificate at
the principal office of the Company as identified in Section 14 hereof, with the
form of election to purchase on the reverse thereof duly completed and signed,
(ii) payment of the Exercise Price with respect to the Warrant Shares being
purchased, and (iii) if required pursuant to Section 5, an amount sufficient to
pay any transfer or similar tax (or evidence reasonably satisfactory to the
Company demonstrating that such taxes have been paid).  Payment of the Exercise
Price may be made (a) in the form of cash or by certified or official bank check
payable to the order of the Company or (b) by surrendering additional Warrants
or shares of Common Stock for cancellation to the extent the Company may
lawfully accept shares of Common Stock, with the value of such shares of Common
Stock for such purpose to equal the average Current Market Price of the Common
Stock during the 10 Trading Days preceding the date surrendered and the value of
the Warrants to equal the difference between the value of a share of Common
Stock and the Exercise Price.

          The Company shall, as soon as practicable after such surrender for
exercise of Warrant Certificates and compliance with the other conditions herein
contained, deliver at such offices of such transfer agent to the Person for whom
such Warrant Certificates are so surrendered, or to the nominee or nominees of
such Person, in its sole discretion, certificates evidencing the number of full
shares of Warrant Shares to which such Person shall be entitled, together with a
cash payment in respect of any fraction of a share of such Warrant Shares as
hereinafter provided.

                                       7
<PAGE>
 
Subject to the following provisions of this paragraph, each exercise shall be
deemed to have been effected immediately prior to the close of business on the
date on which the Warrant Certificates to be exercised shall have been
surrendered together with the payment of the aggregate exercise price and taxes
(if applicable), all as provided in this Section 4.2, and the Person or Persons
entitled to receive the Warrant Shares deliverable upon exercise of such
Warrants shall be treated for all purposes as the record holder or holders of
such Warrant Shares at such time on such date, unless the stock transfer books
of the Company shall be closed on such date, in which event such Person or
Persons shall be deemed to have become such holder or holders of record at the
close of business on the next succeeding day on which such stock transfer books
are open, but such exercise shall be effected based on the Conversion Exercise
Price in effect on the date on which such Warrant Certificates shall have been
surrendered and the other conditions specified above have been satisfied. No
holder of Warrants shall have any rights as a holder of Warrant Shares (or any
other securities into which the Warrants may become exercisable) unless and
until such exercise has been effected.

          If a Warrant Certificate is exercised in respect of less than all of
the Warrant Shares purchasable on such exercise at any time prior to the date of
expiration of the Warrants, a new Warrant Certificate evidencing the remaining
Warrant or Warrants will be issued to the Holder, or its nominee(s), without
charge therefor, and the Company shall issue and deliver the required new
Warrant Certificate or Certificates pursuant to the provisions of  this Section
4 and of Section 3 hereof.  All Warrant Certificates surrendered in the exercise
of the rights thereby evidenced shall be canceled.

          Each Holder of a Warrant represented by a Preferred Stock certificate
may exercise such Warrant in the manner substantially similar as set forth above
by surrendering the Preferred Stock certificate in exchange for a Preferred
Stock certificate representing a like number of shares of Preferred Stock and
otherwise following the procedures set forth above.

          4.3  No Fractional Shares.  No fractional shares or scrip representing
               --------------------                                             
fractional shares of Common Stock shall be issued upon exercise of Warrants.  If
more than one Warrant shall be surrendered for conversion at any one time by the
same Holder, the number of full shares of Warrant Shares issuable upon exercise
thereof shall be computed on the basis of the aggregate number of Warrants so
surrendered by such Holder as provided in Section 4.2.  In lieu of any
fractional share of Warrant Shares that would otherwise be issuable upon
exercise of any Warrants, the Company shall pay a cash adjustment in respect of
such fractional share in an amount equal to the same fraction of the Current
Market Price of the Warrant Shares on the Trading Day immediately preceding the
date of exercise, calculated to the nearest cent, with one-half cent rounded
upward.

SECTION 5.    PAYMENT OF TAXES

          The Company shall pay any and all issue or other taxes that may be
payable in respect of any issue or delivery of Warrant Shares upon exercise of
the Warrants.  The Company shall not, however, be required to pay any tax which
may be payable in respect of any transfer involved in the issue or delivery of
Warrants or Warrant Shares (or other securities or assets) in a name other than
that in which the Warrants so exercised were registered, and no such issue or
delivery shall 

                                       8
<PAGE>
 
be made unless and until the person requesting such issue has paid to the
Company the amount of such tax or has established, to the satisfaction of the
Company, that such tax has been paid.

SECTION 6.    MUTILATED OR MISSING WARRANTS

          If any Warrant Certificate (or Preferred Stock certificate
representing Warrants) shall be mutilated, lost, stolen or destroyed, the
Company shall issue and deliver in exchange and substitution for and upon
cancellation of the mutilated Warrant Certificate (or Preferred Stock
certificate representing Warrants), or in lieu of and substitution for the
Warrant Certificate (or Preferred Stock certificate representing Warrants) lost,
stolen or destroyed, and upon receipt of evidence to their reasonable
satisfaction of the destruction, loss or theft of any Warrant Certificate (or
Preferred Stock certificate representing Warrants) and such security or
indemnity as may reasonably be required by them to save each of them and any of
their agents harmless, to issue a new Warrant Certificate (or Preferred Stock
certificate representing Warrants) of like tenor and representing an equivalent
right or interest.

SECTION 7.    RESERVATION OF WARRANT SHARES

          The Company shall at all times reserve and keep available out of its
authorized and unissued stock, solely for the purpose of effecting the exercise
of the Warrants, such number of shares of its Common Stock free of preemptive
rights as shall from time to time be sufficient to effect the exercise of all
Warrants from time to time outstanding.  The Company shall from time to time, in
accordance with the laws of the State of Maryland, increase the authorized
number of shares of Common Stock if at any time the number of shares of
authorized and unissued Common Stock shall not be sufficient to permit the
exercise of all the then outstanding Warrants.

          The transfer agent for the Common Stock and every subsequent transfer
agent for any shares of the Company's capital stock issuable upon the exercise
of the Warrants shall be irrevocably authorized and directed at all times to
reserve the maximum number of authorized shares as shall be required for such
purpose.  The Company shall keep a copy of this Agreement on file with the
transfer agent for the Common Stock and with every subsequent transfer agent for
any shares of the Company's capital stock issuable upon the exercise of the
Warrants.

          Before taking any action that would cause an adjustment pursuant to
Section 9.1, the Company will take all corporate action that, in the opinion of
its counsel (which may be counsel employed by the Company), may be necessary in
order that the Company may validly and legally issue fully paid and
nonassessable Warrant Shares at the then applicable exercise price.  The Company
covenants that all Warrant Shares issued upon exercise of the Warrants will,
upon issuance in accordance with the terms of this Agreement, be fully paid and
nonassessable and free from all taxes, liens, charges and security interests
with respect to the issuance thereof that may be created by virtue of any act or
omission of the Company.

SECTION 8.    CANCELLATION OF WARRANTS

          If the Company purchases or otherwise acquires Warrants, the same
shall thereupon be canceled.  The Company shall cancel any Warrant surrendered
for exchange, substitution,

                                       9
<PAGE>
 
transfer or exercise in whole or in part. Canceled Warrant Certificates shall
thereafter be disposed of in a manner satisfactory to the Company.

SECTION 9.    ADJUSTMENTS

          The number of Warrant Shares that the Holder of a Warrant shall be
entitled to receive upon each exercise thereof shall be determined by
multiplying the number of Warrant Shares that would otherwise (but for the
provisions of this Section 9) be issuable upon such exercise, as designated by
the Holder pursuant to Section 4.2 of this Agreement, by the fraction of which
(a) the numerator is $15 per share with respect to the Warrants and (b) the
denominator is the Conversion Exercise Price in effect on the date of such
exercise.

          9.1  Adjustments to the Conversion Exercise Price.
               -------------------------------------------- 

               (a) Dividend of Common Stock. In the event that the Company shall
                   ------------------------       
pay or make a dividend or other distribution on its Common Stock exclusively in
Common Stock or shall pay or make a dividend or other distribution on any other
class or series of capital stock of the Company which includes Common Stock, the
Conversion Exercise Price, as in effect on the close of business on the date
fixed for the determination of stockholders entitled to receive such dividend or
other distribution, shall be reduced by multiplying such Conversion Exercise
Price by a fraction of which the numerator shall be the number of shares of
Common Stock outstanding at the close of business on the date fixed for such
determination and the denominator shall be the sum of such number of shares and
the total number of shares of Common Stock included in such dividend or other
distribution, such reduction to become effective immediately prior to the
opening of business on the day following the date fixed for such determination.
For the purpose of this subparagraph (b), the number of shares of Common Stock
at any time outstanding shall not include shares held in the treasury of the
Company and the number of shares of Common Stock included in such dividend or
other distribution shall be deemed not to include any shares issued or
distributed in respect of shares held in the treasury of the Company.

               (b) Common Stock-Splits, etc. In case outstanding shares of
                   ------------------------    
Common Stock shall be subdivided into a greater number of shares of Common
Stock, the Conversion Exercise Price in effect at the close of business on the
day upon which such subdivision becomes effective shall be proportionately
reduced, and conversely, in case outstanding shares of Common Stock shall each
be combined into a smaller number of shares of Common Stock, the Conversion
Exercise Price in effect at the close of business on the day upon which such
combination becomes effective shall be proportionately increased, such reduction
or increase, as the case may be, to become effective immediately prior to the
opening of business on the day following the day upon which such subdivision or
combination becomes effective.

               (c) Reclassification. If the Company issues by way of
                   ----------------                                  
reclassification of the Common Stock any shares of its capital stock, then, as a
condition of such reclassification, lawful and adequate provisions shall be made
whereby each Holder of a Warrant shall have the right to receive, upon the basis
and upon the terms and conditions specified herein, in lieu of the shares of
Common Stock of the Company immediately theretofore receivable upon exercise of
such Warrant, such shares of capital stock as may be issued or payable with
respect to or in exchange for such number of shares of Common Stock issuable
upon exercise of the Warrant

                                       10
<PAGE>
 
immediately prior to the occurrence of the reclassification. In the case of any
reclassification, appropriate provision shall be made with respect to the rights
and interests of the Holders to the effect that the provisions hereof (including
without limitation provisions for adjustment of the Conversion Exercise Price)
shall thereafter be applicable, as nearly as may be, in relation to any shares
of capital stock thereafter deliverable upon the exercise of any Warrant
hereunder.

               (d) Anti-Dilution Provision. If the Company shall issue any class
                   -----------------------  
or series of capital stock of the Corporation that ranks junior to the Preferred
Stock at a price per share less than the greater of (i) $15 and (ii) the Fair
Market Value per share of such capital stock (such greater amount being
hereinafter referred to as the "Base Rate"), then the Conversion Exercise Price
in effect at the opening of business on the day next following such issuance
shall be adjusted to equal the price determined by multiplying (A) the
Conversion Exercise Price in effect immediately prior to the opening of business
on the day next following such issuance by (B) a fraction, the numerator of
which shall be the sum of (x) the number of shares of all classes and series of
capital stock outstanding on the close of business on the day next preceding the
day of such issuance and (y) the number of shares that could be purchased at the
Base Rate from the aggregate proceeds to the Company from the issuance of such
new shares of capital stock, and the denominator of which shall be the sum of
(xx) the number of shares of all classes and series of capital stock outstanding
on the close of business on the day next preceding the day of such issuance and
(yy) the number of additional shares of capital stock being issued; provided ,
                                                                    -------- 
however, that no adjustment to the Conversion Exercise Price shall be made as a
-------                                                                        
result of a Qualified IPO.  For purposes of this subsection, "Fair Market Value"
shall mean, as to any class or series of capital stock that is not publicly
traded, the fair value of the shares of such class or series as determined
reasonably and in good faith by a majority of the Board of Directors of the
Company including a majority of the Independent Directors and, as to publicly-
traded securities, shall mean the average of the daily Current Market Prices of
a share of such capital stock during five (5) consecutive trading days selected
by the Company commencing not more than twenty (20) Trading Days before, and
ending not later than the effective day of the Conversion Exercise Price
adjustment pursuant to this subsection.

               (e) Rounding of Calculations. All calculations under this Section
                   ------------------------     
9.1 shall be made to the nearest one-hundredth of a share.

               (f) Minimum Adjustment of Conversion Exercise Price. If the
                   -----------------------------------------------   
amount of any adjustment of the Conversion Exercise Price required pursuant to
this Section 9.1 would be less than one percent (1%) of the Conversion Exercise
Price in effect at the time such adjustment is otherwise so required to be made,
no such adjustment shall be made and such amount shall be carried forward and
adjustment with respect thereto made at the time of and together with any
subsequent adjustment which, together with such amount and any other amount or
amounts so carried forward, shall aggregate at least one percent (1%) of such
Conversion Exercise Price.

               (g) Timing of Issuance. In any case in which this Section 9.1
                   ------------------   
shall require that an adjustment be made effective immediately after a
determination date for a specified event, the Company may defer until the
occurrence of such event (i) the issuing to the Holder of any Warrant the
Warrant Shares issuable upon such exercise over and above the Warrant Shares
issuable upon such exercise after such determination date prior to such
adjustment and (ii) paying 

                                       11
<PAGE>
 
to such Holder any cash pursuant to Section 4.2 hereof; provided, however, that
the Company shall deliver to such Holder a due bill or other appropriate
instrument evidencing such Holder's right to receive such additional shares, and
such cash, upon the occurrence of the event requiring such adjustment.

          9.2  Notice of Adjustment.  On or prior to each day on which the
               --------------------                                       
Conversion Exercise Price is adjusted as herein provided, the Company shall send
to each Holder notice of such adjustment(s) and a certificate setting forth the
Warrant Shares purchasable upon the exercise of each Warrant and the Conversion
Exercise Price after such adjustment(s), a brief statement of the facts
requiring such adjustment(s), and the computation by which such adjustment(s)
were made.  Such certificate shall, in the absence of manifest error, be
conclusive evidence of the correctness of such adjustment.

          9.3  No Adjustment of Dividends.  Except as provided in this Section
               --------------------------                                     
9, no adjustment in respect of any dividends shall be made during the term of a
Warrant or upon the exercise of a Warrant.

          9.4  Statement on Warrants.  Irrespective of any adjustments in the
               ---------------------                                         
Conversion Exercise Price or the number or kind of Warrant Shares purchasable
upon the exercise of the Warrants, Warrant Certificates theretofore or
thereafter issued may continue to express the same price and number and kind of
shares as are stated in the Warrant Certificates initially issuable pursuant to
this Agreement.

SECTION 10.    FUNDAMENTAL CHANGE

          In the event of a Fundamental Change, each Warrant will be deemed
exercised at the opening of business on the effective date thereof for the right
to receive the kind and amount of shares of stock or other securities or
property to which such holder would have been entitled as a result of such
transaction had the Warrants been exercised immediately prior to the
consummation of such transaction (i) for a number of shares of Preferred Stock
equal to the number of shares of Common Stock receivable upon such exercise, if
prior to the conversion of the related Preferred Stock and (ii) for the number
of shares of Common Stock receivable upon such exercise, if after the conversion
of the related Preferred Stock, less in each case the amount of the Exercise
Price as of such date of consummation of the transaction.

SECTION 11.    NOTICES TO HOLDERS

        In case:

               (a) the Company shall (i) declare any dividend or any other
distribution payable in shares of Common Stock, (ii) declare or authorize a
subdivision or combination of shares of Common Stock, (iii) authorize the
granting to all holders of Common Stock of rights or warrants to subscribe for
or purchase any shares of stock of any class or of any other rights or warrants,
or (iv) any reclassification of Common Stock; or

               (b) the Company shall propose to take any action that would
require an adjustment pursuant to Section 9.1; or

                                       12
<PAGE>
 
               (c)  of any Fundamental Change;

then the Company shall cause to be mailed to the Holders of Warrants, at least
fifteen (15) days prior to the applicable date hereinafter specified, a notice
stating (x) the date on which a record (if any) is to be taken for the purpose
of such dividend, distribution or granting of rights or warrants or (y) the date
on which such subdivision, combination, reclassification, adjustment or
Fundamental Change is expected to become effective.  No failure to mail such
notice or any defect therein or in the mailing thereof shall affect the validity
of the corporate action required to be specified in such notice.

SECTION 12.    NO RIGHTS AS STOCKHOLDERS

          Nothing contained in this Agreement or in the Warrants shall be
construed as conferring upon the Holders thereof or their transferees (a) the
right to vote or to receive dividends, (b) the right to consent or receive
notice as stockholders in respect of any meeting of stockholders for the
election of directors of the Company or any other matter, or (c) any rights
whatsoever as stockholders of the Company.

SECTION 13.    INSPECTION OF WARRANT AGREEMENT

          The Company shall keep copies of this Agreement and any notices given
or received hereunder available for inspection by the Holders during normal
business hours at its office as set forth in Section 15.

                                       13
<PAGE>
 
SECTION 14.    IDENTITY OF TRANSFER AGENT

          The initial transfer agent is the Company.  Promptly upon the
appointment of any subsequent transfer agent of the Preferred Stock or Common
Stock, or any other shares of the Company's capital stock issuable upon the
exercise of the Warrants, the Company will cause to be mailed to the Holders of
Warrants a statement setting forth the name and address of such subsequent
transfer agent.

SECTION 15.    NOTICES

          All notices and other communications provided for or permitted
hereunder shall be in writing and shall be deemed given (i) when made, if made
by hand delivery, (ii) upon mailing, if by first class mail, postage prepaid,
(iii) upon confirmation, if made by telecopier or (iv) one (1) business day
after being deposited with a reputable next-day courier, postage prepaid, to the
parties as follows:

          if to the Company:           NovaStar Financial, Inc.
                                       1900 West 47th Place
                                       Suite 205
                                       Westwood, KS  66205
                                       Attn: Scott F. Hartman
                                       Phone No.: (913) 362-1090
                                       Fax No.: (913) 362-1011

          with a copy to:              Tobin & Tobin
                                       One Montgomery Street, 15th Floor
                                       San Francisco, CA 94104
                                       Attn: Phillip R. Pollock
                                       Phone No.: (415) 433-1400
                                       Fax No: (415) 433-3883

          The Company will initially act as Warrant Agent; however, the Company
reserves the right at any time to designate a new acting Warrant Agent.  Upon
appointment of a successor Warrant Agent to the Company, the Company or the
Warrant Agent will cause to be mailed to the Holders of Warrants a statement
setting forth the name and address of such subsequent Warrant Agent.

          Any notice or communication sent or required to be sent to a Holder of
a Warrant shall be mailed to him or her by first class mail, postage prepaid, at
such Holder's address as it appears in the Warrant Register and shall be
sufficiently given to him or her if so mailed within the time prescribed.

SECTION 16.    AMENDMENT AND WAIVER

          The Company may from time to time supplement, modify or amend this
Agreement, and waivers or consents to departures from the provisions hereof may
be given, without the approval of any Holder, in order to cure any ambiguity or
to correct or supplement any provisions 

                                       14
<PAGE>
 
contained herein which provisions may be defective or inconsistent with any
other provisions herein, or to make any other provisions in regard to matters or
questions arising hereunder which the Company may deem necessary or desirable
and which shall not be inconsistent with the provisions of the Warrants and
which shall not adversely affect the interest of the Holders. Except as provided
above, this Agreement may not be amended, modified or supplemented, and waivers
or consents to departures from the provisions hereof may not be given, without
the written consent of Holders of at least 66 2/3% in interest of the Warrants.

SECTION 17.    SUCCESSORS

          All the covenants and provisions of this Agreement and the Warrants by
or for the benefit of the Company or the Holders of the Warrants shall be
binding upon and shall inure to the benefit of their respective successors and
assigns hereunder.

SECTION 18.    GOVERNING LAW

          THE VALIDITY, INTERPRETATION AND PERFORMANCE OF THIS AGREEMENT SHALL
BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE
AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW, EXCEPT TO THE EXTENT THAT THE MARYLAND GENERAL CORPORATION LAW
MAY GOVERN THIS AGREEMENT SOLELY BY VIRTUE OF THE FACT THAT THE COMPANY IS
INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND.  EACH OF THE COMPANY AND
THE WARRANT AGENT, ACTING ON BEHALF OF THE HOLDERS, HEREBY IRREVOCABLY SUBMITS
TO THE JURISDICTION OF ANY NEW YORK STATE COURT OR ANY FEDERAL COURT IN RESPECT
OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT,
AND IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH SUIT, ACTION OR
PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT.  EACH OF THE COMPANY,
AND THE WARRANT AGENT, ACTING ON BEHALF OF THE HOLDERS, IRREVOCABLY WAIVES ANY
OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY
SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY
SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM.

SECTION 19.    THIRD-PARTY BENEFICIARY

          The provisions hereof have been and are made solely for the benefit of
the Company, the Warrant Agent and each of the Holders of Warrants, and their
respective successors and assigns, and no other person shall acquire or have any
right hereunder or by virtue hereof.

                                       15
<PAGE>
 
SECTION 20.    COUNTERPARTS

          This Agreement may be executed in any number of counterparts and by
the parties hereto in separate counterparts, each of which when so executed
shall be deemed to be an original and all of which taken together shall
constitute one and the same instrument.

SECTION 21.    HEADINGS

          The headings in this Agreement are for convenience only and shall not
limit or otherwise affect the meaning hereof.

SECTION 22.    SEVERABILITY

          If any term, provision, covenant or restriction of this Agreement is
held by a court of competent jurisdiction to be invalid, illegal, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their best efforts to find and employ an alternative means to achieve the same
or substantially the same result as that contemplated by such term, provision,
covenant or restriction.  It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such which may
be hereafter invalid, illegal, void or unenforceable.

SECTION 23.    ENTIRE AGREEMENT

          This Agreement, together with the Purchase Terms Agreement, the
Registration Rights Agreement, the Subscription and Purchase Agreements executed
by the Initial Purchasers and accepted by the Company, and the Warrants
(collectively, the "Operative Agreements"), are intended by the parties to be a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein and therein.  There are no restrictions,
promises, warranties and undertakings, other than those set forth or referred to
herein and therein.  The Operative Agreements supersede all prior agreements and
understandings between the parties with respect to such subject matter.

SECTION 24.    ATTORNEYS' FEES

          In any action or proceeding brought to enforce any provision of the
Operative Agreements, or where any provision hereof or thereof is validly
asserted as a defense, the prevailing party, as determined by the court, shall
be entitled to recover reasonable attorneys' fees in addition to any other
available remedy.

SECTION 25.    FURTHER ASSURANCES

          Each party hereto agrees to use all reasonable efforts to obtain all
consents and approvals, and to do all other things, necessary for the
transactions contemplated by this Agreement on or prior to the Expiration Date.
The parties agree to take such further action and to deliver or cause 

                                       16
<PAGE>
 
to be delivered to each other after the date hereof such additional agreements
or instruments as any of them may reasonably request for the purpose of carrying
out the agreements and transactions contemplated hereby and thereby.

SECTION 26.    EQUITABLE REMEDIES

          Each party hereto acknowledges and agrees that irreparable harm, for
which there may be no adequate remedy at law and for which the ascertainment of
damages would be difficult, would occur in the event any of the provisions of
this Agreement were not performed in accordance with its specific terms or were
otherwise breached.  Each party hereto accordingly agrees that each other party
hereto shall be entitled to an injunction or injunctions to prevent breaches of
the provisions of this Agreement, or any agreement contemplated hereunder and to
enforce specifically the terms and provisions hereof or thereof in any court of
the United States or any state thereof having jurisdiction, in each instance
without being required to post bond or other security and in addition to, and
without having to prove the inadequacy of, other remedies of law.

                                       17
<PAGE>
 
          IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed, all as of the day and year first above written.

                                       NOVASTAR FINANCIAL, INC.
                                       (as issuer of the Warrants)


                                       By_________________________________
                                         W. Lance Anderson, President
(SEAL)


Attest:

____________________________________
Scott F. Hartman, Secretary



                                       NOVASTAR FINANCIAL, INC.
                                       (as initial Warrant Agent)

                                       By_________________________________
                                         W. Lance Anderson, President

(SEAL)


Attest:


_____________________________________
Scott F. Hartman, Secretary

                                       18
<PAGE>
 
                                                                       EXHIBIT A
                         [Form of Warrant Certificate]

          THE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS.  NEITHER
THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, REGISTRATION.

          THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER,
SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE
RESTRICTION TERMINATION DATE") WHICH IS THREE YEARS AFTER THE LATER OF THE
ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY
AFFILIATED PERSON OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY
PREDECESSOR OF SUCH SECURITY) ONLY (A) TO THE COMPANY, (B) PURSUANT TO A
REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES
ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE
144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT, THAT PURCHASES FOR ITS OWN
ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS
GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) TO AN
INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (A)(1),
(A)(2), (A)(3) OR (A)(7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING
THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL
"ACCREDITED INVESTOR" FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR
OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE
SECURITIES ACT, (E) TO AN INDIVIDUAL "ACCREDITED INVESTOR" AS DEFINED IN
SUBPARAGRAPH (A)(4), (A)(5) OR (A)(6) OF RULE 501 UNDER THE SECURITIES ACT THAT
IS RESIDING IN ONE OF THE JURISDICTIONS AUTHORIZED BY THE COMPANY AND WHO IS
ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT FOR INVESTMENT PURPOSES AND NOT WITH
A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN
VIOLATION OF THE SECURITIES ACT OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO (I) IN EACH
OF THE FOREGOING CASES, ANY REQUIREMENT OF LAW THAT THE DISPOSITION OF ITS
PROPERTY OR THE PROPERTY OF SUCH ACCOUNTS BE AT ALL TIMES WITHIN ITS OR THEIR
CONTROL AND IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS, AND (II)
THE COMPANY'S OR WARRANT AGENT'S RIGHT, AS THE CASE 

                                      A-1
<PAGE>
 
MAY BE, PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSES (D), (E)
OF (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR
OTHER INFORMATION REASONABLY SATISFACTORY TO EACH OF THEM, AND IN EACH OF THE
FOREGOING CASES, A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE OTHER
SIDE OF THIS SECURITY COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE COMPANY
OR THE WARRANT AGENT, AS THE CASE MAY BE. IN ADDITION, PRIOR TO THE TIME THE
CLASS OF STOCK ISSUABLE UPON EXERCISE OF THIS SECURITY IS LISTED ON A NATIONAL
SECURITIES EXCHANGE OR THE NASDAQ NATIONAL MARKET, THIS SECURITY MAY NOT BE
TRANSFERRED TO ANY "BENEFIT PLAN INVESTOR" AS SUCH TERM IS DEFINED IN 29 C.F.R.
(S)2510.3-101 UNLESS THE PROPOSED TRANSFEREE PROVIDES A DISCLOSURE AND
ACKNOWLEDGMENT FORM AND THE AGGREGATE PERCENTAGE OF THE CLASS OF STOCK ISSUABLE
UPON EXERCISE OF THE SECURITY PROPOSED TO BE TRANSFERRED, TAKEN TOGETHER WITH
ALL OTHER SHARES OF SUCH CLASS OWNED BY BENEFIT PLAN INVESTORS, WOULD NOT EQUAL
OR EXCEED 25% OF SUCH CLASS OUTSTANDING.

          THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
PROVISIONS AND ENTITLED TO THE BENEFITS OF A WARRANT AGREEMENT, DATED AS OF
DECEMBER 9, 1996.  A COPY OF SUCH AGREEMENT IS ON FILE AT THE OFFICES OF THE
COMPANY AND WILL BE MADE AVAILABLE TO ANY WARRANTHOLDER UPON REQUEST WITHOUT
CHARGE.

CUSIP NO.  [         ]                                   Warrant No.: [        ]
 
                     Certificate for __________ Warrants
                        EXERCISABLE IN WHOLE OR IN PART
               FROM TIME TO TIME AT ANY TIME AFTER THE START DATE
                           UNTIL THE EXPIRATION DATE


                            NOVASTAR FINANCIAL, INC.

                       STOCK PURCHASE WARRANT CERTIFICATE

          THIS CERTIFIES that _______________________________ or registered
assigns is the registered holder (the "Holder") of the number of Stock Purchase
Warrants set forth above (the "Warrants"), each of which represents the right to
purchase one (1) share of Common Stock, par value $.01 per share ("Common
Stock") of NovaStar Financial, Inc., a Maryland corporation (the "Company"), on
the terms set forth in the Warrant Agreement, dated as of December 9, 1996 (the
"Warrant Agreement), between the Company, as issuer of the Warrants, and the
Holders of the Warrants initially acting through the Company as the initial
warrant agent (together with successor warrant agents, if any, the "Warrant
Agent"), at any time on or after the 

                                      A-2
<PAGE>
 
Start Date (as defined below) and on or before the Expiration Date (as defined
below), by surrendering this Warrant Certificate, with the form of election to
purchase set forth hereon duly executed, at the office maintained for that
purpose by the Company or its successors as Warrant Agent, and by paying in full
a price per share equal to the Exercise Price under the Warrant Agreement (the
"Exercise Price"). The Warrants are subject to certain anti-dilution provisions
and, accordingly, the number of shares of Common Stock actually purchased upon
payment of the Exercise Price may be adjusted in accordance with the terms of
the Warrant Agreement. Capitalized terms used in this Warrant Certificate and
not otherwise defined herein shall have the meanings set forth in the Warrant
Agreement.

          Payment of the Exercise Price may be made (a) in the form of cash or
by certified or official bank check payable to the order of the Company or (b)
by surrendering additional Warrants or shares of Common Stock for cancellation
to the extent the Company may lawfully accept shares of Common Stock, with the
value of such shares of Common Stock for such purpose to equal the average
trading price of the Common Stock during the 10 trading days preceding the date
surrendered and the value of the Warrants to equal the difference between the
value of a share of Common Stock and the Exercise Price.

          Subject to the terms contained in the Warrant Agreement, this Warrant
may be exercised at any time beginning on the date (the "Start Date") of the
earlier to occur of (i) the effectiveness of the Shelf Registration Statement or
(ii) six (6) months after the closing of  a Qualified IPO and ending at 5:00
p.m., Eastern Standard Time, on the third anniversary  of the date the Warrants
become exercisable (the "Expiration Date").  No Warrant may be exercised after
the Expiration Date and all Warrants evidenced hereby shall thereafter become
void.

          Upon the exercise of less than all of the Warrants evidenced by this
Warrant Certificate, there shall be issued to the Holder a new Warrant
Certificate representing the Warrants not exercised.

          Prior to the Expiration Date, subject to any applicable laws, rules or
regulations restricting transferability and to any restriction on
transferability that may appear on this Warrant Certificate, or in the Warrant
Agreement or the Purchase Terms Agreement, the Holder shall only be entitled to
transfer this Warrant Certificate on the Warrant Register maintained at the
principal office of the Company, upon delivery thereof, duly endorsed by the
Holder or by his or her duly authorized attorney or representative, or
accompanied by proper evidence of succession, assignment or authority to
transfer deemed acceptable by the Company, with the form of assignment set forth
hereon duly executed.  Upon any such transfer, a new Warrant Certificate or
Warrant Certificates representing the same aggregate number of Warrants will be
issued in accordance with instructions in the form of assignment.

          Prior to the Expiration Date, the Holder shall be entitled to exchange
this Warrant Certificate, with or without other Warrant Certificates, for
another Warrant Certificate or Warrant Certificates for the same aggregate
number of Warrants, upon surrender of this Warrant Certificate at the principal
office maintained for this purpose by the Company.

          No fractional shares will be issued upon the exercise of Warrants.  As
to any final fraction of a share that the Holder of one or more Warrant
Certificates, the rights under which are 

                                      A-3
<PAGE>
 
exercised in the same transaction, would otherwise be entitled to purchase upon
such exercise, the Company shall pay the cash value thereof determined as
provided in the Warrant Agreement.

          This Warrant Certificate is issued under and in accordance with the
Warrant Agreement and is subject to the terms and provisions contained in said
Warrant Agreement, to all of which terms and provisions the Holder consents by
acceptance hereof.

          This Warrant Certificate shall not entitle the Holder to any of the
rights of a stockholder of the Company, including, without limitation, the right
to vote, to receive dividends and other distributions, or to attend or receive
any notice of meetings of stockholders or any other proceedings of the Company.

          THE VALIDITY, INTERPRETATION AND PERFORMANCE OF THIS WARRANT
CERTIFICATE SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, AS APPLIED
TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAWS, EXCEPT TO THE EXTENT THAT THE GENERAL
CORPORATION LAW OF THE STATE OF MARYLAND MAY GOVERN THIS AGREEMENT SOLELY BY
VIRTUE OF THE FACT THAT THE COMPANY IS INCORPORATED UNDER THE LAWS OF THE STATE
OF MARYLAND.

          IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed.

                                       NOVASTAR FINANCIAL, INC.


                                       By_______________________________________
                                         W. Lance Anderson, President

Attest:

                                       _________________________________________
                                       Scott F. Hartman, Secretary

(SEAL)

                                      A-4
<PAGE>
 
                              ELECTION TO PURCHASE

          The undersigned hereby irrevocably elects to exercise __________
Warrants represented by this Warrant Certificate and to purchase the shares of
Common Stock issuable upon the exercise of said Warrants, and requests that
certificates for such shares be issued and delivered as follows:

ISSUE TO:    _______________________________________________
             (Name)

             _______________________________________________
             (Address, Including Zip Code)

             _______________________________________________
             (Social Security or Tax Identification Number)


DELIVER TO:  _______________________________________________
             (Name)

             _______________________________________________
             (Address, Including Zip Code)

          In payment of the purchase price with respect to the Warrants
exercised, the undersigned hereby tenders payment in accordance with Section 4.2
of the Warrant Agreement.  If the number of Warrants hereby exercised is fewer
than all the Warrants represented by this Warrant Certificate, the undersigned
requests that a new Warrant Certificate representing the number of full Warrants
not exercised be issued and delivered as set forth below:

Name of Warrantholder or Assignee:
                                  ______________________________________________
                                      (Please Print)

Address: ______________________________________________________________________

______________________________________________________________________________

Signature: __________________________________  Dated:___________________________

 (Signature must conform in all respects to name of holder as specified on the
                       face of the Warrant Certificate.)

Signature Guaranteed:___________________________________________________________

                                      A-5
<PAGE>
 
                                   ASSIGNMENT

          FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto the Assignee named below all of the rights of the undersigned
represented by the within Warrant Certificate, with respect to the number of
Warrants set forth below:



                                                            Taxpayer
                                           Number of     Identification 
Name of Assignee        Address            Warrants          Number
----------------        -------            --------          ------   
                                                    
--------------------    -----------------  --------        ----------
--------------------    -----------------  --------        ----------


and does hereby irrevocably constitute and appoint ___________________________,
Attorney, to make such transfer on the Warrant Register maintained at the
principal office of the Company with full power of substitution in the premises.


Dated: _________________, 199__      ____________________________________
                                     (Signature)



                                     (Signature must conform in all respects to
                                     name of holder as specified on the face of
                                     the Warrant Certificate.)


                                     Signature Guaranteed:


                                     ____________________________________


                                      A-6