American Banker reports on something that’s been widely discussed behind the scenes late Friday and today (and was mentioned by commenter Patrick last week as well): Wachovia Corp. waived certain covenants with subprime lender NovaStar Financial Inc. in order to overlook a recent servicer downgrade by Moody’s Investors Service.

Wachovia Corp., the principal short-term creditor for NovaStar Financial Inc., has agreed to overlook a downgrade in the Kansas City, Mo., subprime lender’s servicer rating. On Aug. 17, Wachovia waived provisions of its agreements that would have allowed it to treat the downgrade as a breach or “event of default.” The waivers, which will expire Nov. 1, were granted in anticipation of a single-notch downgrade in NovaStar’s servicer rating last week by Moody’s Investors Service, to SQ4-plus.

Subscribers can read the full story — and a subscription is highly recommended. I covered Wachovia’s market movement in an in-depth look last week, including its suit against ultra-jumbo lender Thornburg Mortgage. NovaStar isn’t alone here: other servicers are the subject of recent downgrades as well, including ResCap’s various servicing entities, which raises the question of whether similar waivers are needed from various creditors for GMAC Mortgage, GMAC-RFC, and Homecomings Financial as well.