January 11, 2008 / 9:28 PM / 12 years ago

NovaStar lays off 85 percent of staff

NEW YORK (Reuters) - NovaStar Financial Inc NFI.N, which last year halted subprime mortgage lending and is struggling to survive, said on Friday it is eliminating 85 percent of its remaining work force, or 170 jobs.

In a U.S. Securities and Exchange Commission filing, the Kansas City, Missouri-based company said the cuts are tied to its decision to quit its retail mortgage lending and brokerage operations.

NovaStar said it will employ 30 people after the latest cuts, down from 2,048 at the end of 2006. The newest cuts will result in a $1.3 million to $1.8 million pre-tax charge, nearly all of which NovaStar plans to take in the first quarter.

Separately, the New York Stock Exchange said it plans to suspend trading in NovaStar stock prior to the market opening on January 17.

NovaStar specialized in making home loans to customers with weak credit. It made $11.2 billion of home loans in 2006, but quit lending after delinquencies and defaults soared.

The company’s business now consists mainly of managing a mortgage securities portfolio.

In November, NovaStar said it could not guarantee it would remain a “going concern,” and outlined several scenarios under which it might seek bankruptcy protection.

NovaStar shares closed Friday down 36 cents, or 11 percent, at $2.92 on the New York Stock Exchange.

Reporting by Jonathan Stempel; Editing by Richard Chang

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