Former subprime lender NovaStar Financial Inc. turned a profit in 2010, but the appraisal giant still faces substantial risk from its subprime lending days, the firm said in a securities report this week. The company bounced back from a $183.1 million loss in fiscal 2009 by posting a profit of $985.6 million for fiscal year 2010. Kansas City-based NovaStar Financial currently owns an 88% stake in StreetLinks LLC, a residential appraisal firm. Prior to acquiring StreetLinks three years ago, NovaStar Financial had a significant presence in the subprime space. The company survived the subprime meltdown that occurred in 2008, but NovaStar told investors in its latest annual report that the risk of having to compensate parties who purchased mortgage loans from NovaStar remains years after the company distanced itself from that segment. "When we sold mortgage loans, whether as whole loans or pursuant to a securitization, we made customer representations and warranties to the purchaser about the mortgage loans and the manner in which they were originated," NovaStar said in its annual report. "We have received various repurchase demands as performance of subprime mortgage loans has deteriorated." While the firm said it has mostly denied those repurchase requests and even managed to broker some deals, NovaStar is still concerned  "enforcement of repurchase obligations against us would further harm our liquidity." NovaStar said some of its liquidity concerns are tied to pending court cases, including a lawsuit filed by the New Jersey Carpenters Health Fund against NovaStar Mortgage. "The company cannot provide an estimate of the range of any loss," NovaStar said in its SEC filing. But, "[t]he company believes it has meritorious defenses to the case." NovaStar also reported some potential risks tied to its appraisal business. "A prolonged decline in the number of home sales and the originations and refinancings of home loans would decrease appraisal order volume and adversely affect the revenues and profitability of StreetLinks," the company said. Write to Kerri Panchuk.