UPDATE 1-Novastar suspends funding some loans

(Adds details, stock price movement)

NEW YORK, Aug 3 (Reuters) - Novastar Financial Inc NFI.N, which provides mortgages to people with weak credit, said on Friday it will temporarily suspend funding some of its loans.

The affected mortgages are wholesale loans that have not been locked in, according to the company's customer service center. The suspension of funding will last until Aug. 7. The company will then re-evaluate the temporary halt.

Mortgage companies are finding it difficult to sell the loans they originate to investors in the secondary market. Those loans sales are vital because they generate the capital lenders need to keep funding new loans.

On Friday, Novastar shares sank 11 percent to $6.40 in New York Stock Exchange trade and fell even further -- to $5.55 -- in electronic trading after the market closed.

Kansas City, Missouri-based Novatar has struggled this year as a rising wave of delinquencies and defaults roil subprime lenders throughout the United States.

Last month, Novastar said it received commitments of up to $150 million from MassMutual and Jefferies Capital Partners. The investors have agreed to purchase $48.8 million of Novastar's convertible preferred stock. They also are committed, subject to certain conditions, to purchase up to $101.2 million of any unsubscribed shares of an upcoming shareholder rights offering for a similar series of convertible preferred stock, Novastar added.

(Reporting by Tim McLaughlin)

((Editing by Andre Grenon; Reuters messaging: tim.mclaughlin.reuters.com@reuters.net +1 646 223 6033)) Keywords: USA SUBPRIME/NOVASTAR

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