UNITED STATES
 SECURITIES AND EXCHANGE COMMISSION

 Washington, D.C. 20549

 FORM 8-K


 CURRENT REPORT
 PURSUANT TO SECTION 13 OR 15(d) OF THE
 SECURITIES EXCHANGE ACT OF 1934

 January 8, 2008
 Date of Report (Date of earliest event reported)



 NOVASTAR FINANCIAL, INC.
 (Exact name of registrant as specified in its charter)

 Maryland 001-13533 74-2830661
------------------------------- ------------------- -------------------
(State or other jurisdiction of (Commission File (I.R.S. Employer
incorporation or organization) Number) Identification No.)


 8140 Ward Parkway, Suite 300, Kansas City, MO 64114
 ---------------------------------------------------
 (Address of principal executive offices)
 (Zip Code)

 (816) 237-7000
 --------------
 (Registrant's telephone number, including area code)

 Not Applicable
 --------------
 (Former Name or Former Address, if Changed Since Last Report)



Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:

[ ] Written communications pursuant to Rule 425 under the Securities Act (17
 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17
 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
 Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
 Exchange Act (17 CFR 240.13e-4(c))





Item 2.05 Costs Associated with Exit or Disposal Activities

On January 8, 2008, the Audit Committee of the Board of Directors of the Company
committed the Company to a workforce reduction pursuant to an exit or disposal
plan (the "Plan") as described in paragraph 8 of Financial Accounting Standards
Board Statement of Financial Accounting Standards No. 146 Accounting for Costs
Associated with Exit or Disposal Activities (SFAS No. 146), under which material
charges will be incurred under generally accepted accounting principles
applicable to the Company.

The Company is undertaking the Plan in connection with its decision to
discontinue its retail and brokerage operations in order to preserve cash and
reduce debt and in light of the Company's inability to satisfy certain minimum
licensing requirements for these operations relating to the net worth and
financial condition of the Company. The Company and its subsidiaries will
surrender to appropriate regulatory authorities or otherwise allow to lapse all
licenses and other governmental authorizations relating to its mortgage
origination and brokerage businesses. Discontinuing such licenses and
governmental authorizations may hinder or otherwise negatively affect the
ability of the Company to recommence a mortgage origination and mortgage
brokerage business if market conditions improve.

The Plan will result in the elimination of approximately 170 positions. The
Company expects to have approximately 30 employees, overall, after this
reduction in workforce. Subject to completion of the necessary legal notices and
requirements, implementation of the Plan will begin immediately and is expected
to conclude during the first quarter of 2008.

The Company's mortgage portfolio management operations were not affected by the
reduction.

The Company estimates that the total pre-tax charge to earnings associated with
the Plan will range between $1.3 million and $1.8 million, consisting primarily
of cash expenditures for severance costs. The Company anticipates that
substantially all of the pre-tax charges to earnings and cash expenditures will
be incurred in the first quarter of 2008; however, some may be incurred in the
second quarter of 2008.

 2





 SIGNATURE

 Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.

Dated: January 11, 2008 NOVASTAR FINANCIAL, INC.


 /s/ Rodney E. Schwatken
 -----------------------------------------
 Rodney E. Schwatken,
 Chief Financial Officer

 3
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