Why did blue-chip Goldman take a walk on subprime's wild side?

IRVINE, Calif. — Goldman Sachs was one of the last Wall Street giants to enter the subprime lending world, but when it did, it quickly climbed into bed with profligate, highflying firms — companies such as New Century Financial Corp.

In at least nine deals from 2002 to 2007, Goldman sold bonds backed by more than $5 billion of New Century's mortgages, one even after the California lender's underwriting criteria all but disintegrated and a cash squeeze paralyzed its operation. Goldman also marketed at least three secret offshore deals bearing New Century's name.

Goldman has yet to explain why it risked its blue-chip reputation and financial health to buy and repackage at least $135 billion in loans mostly originated by companies that have since gone bust.

Goldman spokesman Michael DuVally stressed, however, that the firm "was not the largest purchaser of loans from any of these mortgage originators, and in some cases was actually quite a small purchaser."

A glimpse inside New Century's operations sheds light on how one of Wall Street's proudest and most prestigious firms helped create a market for junk mortgages, contributing to the economic morass that's cost millions of Americans their jobs and their homes.

Perhaps no mortgage lender was more emblematic of the go-go atmosphere in the sprouting industry that was seizing an outsize share of the home loan market.

Traversing the country in private jets and zipping around Southern California in Mercedes Benzes, Porsches and even a Lamborghini, New Century executives reveled as the firm's annual residential mortgage sales rocketed from $357 million in 1996 to nearly $60 billion a decade later.

To be a subprime lender at the industry's height was to join in a dash for cash, and New Century was an Olympic-caliber sprinter.

Its top five officers, who received nearly $40 million in salaries and bonuses from 2002 to 2005, could peer out the 10th-floor windows of their gleaming onyx headquarters in Irvine and see the offices of more than a dozen rivals.

"A friend of mine said you couldn't fire a .22-caliber rifle and not hit a subprime lender in Orange County," recalled a former manager of a company that reviewed subprime loan files before Goldman and other Wall Street firms bought the mortgages.

For $100 million in mortgages, New Century could command fees from Wall Street of $4 million to $11 million, ex-employees told McClatchy. The goal was to close loans fast, bundle them into pools and sell them to generate money for the next round.