Last
Friday, Novastar Financial Inc., a mortgage lender specializing in loans
to risky borrowers, said it would lay off 350 people, or 17 percent of its
workforce. It took action, the company said, “to align its organization
with changing conditions in the mortgage market.”
The mortgage market is indeed under strain, as borrowers like those
Novastar courted are defaulting at a record clip.
Nevertheless, the distress in the mortgage market is not reflected in the
amounts the company has recently paid to its executives.
Regulatory filings show that two days before the layoff announcement,
seven Novastar executives received a total of 285,856 shares of restricted
stock worth $1.55 million at today’s closing price. The group of seven
also received a total of 492,204 stock options, each with a strike price
of $4.18. Novastar closed today at $5.43, putting those options well into
the money.
Among those receiving the biggest grants were co-founders Scott F.
Hartman, Novastar’s chairman and chief executive, and W. Lance Anderson,
its president and chief operating officer. Each man received restricted
shares worth about $417,000 and almost 132,000 options.
Other recipients were Jeffrey David Ayers, general counsel; Michael L.
Bamberg, senior vice president; Gregory S. Metz, chief financial officer,
David A. Pazgan, president of its loan origination unit and Todd M.
Phillips, chief accounting officer. The restricted stock grants vest over
five years, while the options can be cashed in over the next four years.
If the executives leave the company, they will forfeit the grants.
The stock grants come on top of $1.6 million in total compensation for Mr.
Hartman and for Mr. Anderson in 2006, according to the company’s proxy
filing. Each man made $1.6 million in compensation in 2005.
Shareholders have not fared as well. As one of the bigger players in
subprime residential lending, Novastar’s stock has fallen significantly
this year — down almost 80 percent. The company had a fourth-quarter loss
of $14.4 million and said last month that it did not expect to make much
money on its mortgage investments for the next five years.
Dick Johnson, a spokesman for the company, said its pay disclosure and
layoff announcements were not related. “This is the time of year that the
company does the stock grants, so this follows the pattern from past
years,” he said. “It is part of the long-term compensation philosophy of
the company.”