NovaStar Financial (NYSE:NFI) shares rose as high as 13 percent yesterday amid rumors that the troubled subprime lender may have found a buyer. The Kansas-based company, which provides loans to borrowers with poor credit, has been searching for a buyer since April without success. Investors are hoping that the troubled company can avoid bankruptcy by finding a buyer willing to take on its debt and reward shareholders with a premium buyout price.

NovaStar is one of many subprime lenders that fell victim to an overzealous public. Subprime lenders were able to make a substantial amount of money by lending money to borrowers with poor credit and charging higher interest rates to make up. However, problems began occurring when many of these borrowers began to default on their loans as their variable rate mortgage payments began to balloon. Unfortunately, many subprime lenders were highly leveraged, which led to a substantial windfall.

So, what are the chances that NovaStar will find a buyer? Well, Accredited Home Lenders (NYSE:LEND) was able to find a private equity fund willing to pay $400 million for the company, but this appears to be the exception amid many bankruptcies including that of New Century. Investors must also not forget the "imminent sale" rumor that surfaced last month leading to a 16 percent run-up that was quickly erased. Of course, the company would also not comment on any rumors.

Overall, investors should remain skeptical and prudent when trying to read this stock. The company may be open to a buyout - which helps - but selling a subprime lending firm in this environment could prove to be difficult without a substantial discount. This is definitely a stock to watch, but maybe not one to buy until more solid information surfaces.

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