The company formerly known as NovaStar Financial Inc., which before the housing crash made billions of dollars in risky mortgage loans, has sought chapter 11 protection, The Wall Street Journal reported on Friday. The company is hoping to continue its operations while it works to develop a plan to restructure its debts and resolve pending litigation related to past mortgage activities. Before the 2008 financial crisis, Novation — then known as NovaStar — originated, purchased, sold, invested in, securitized and sold subprime mortgage loans and mortgage securities. At its peak, NovaStar originated more than $11 billion in mortgage loans a year, which it then bundled together into securities that it sold to investors. When the housing bubble burst, NovaStar stopped making new loans and sold off its servicing portfolio of existing loans. The company later renamed itself Novation and now focuses on investing in various businesses. In January, it sold its majority interest in cloud-based telecommunications platform developer Corvisa Inc. Despite its new name and focus, the company’s old mortgage business continues to be embroiled in litigation tied to the housing market’s collapse. At least three significant lawsuits are pending, although the chapter 11 filing puts an automatic halt to those actions.
