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, high-flying firms -- companies such as New Century Financial Corp.

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.

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 spokesman Michael DuVally declined to comment on how Goldman got involved with lenders such as New Century. He 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 received nearly $40 million in salaries and bonuses from 2002 to 2005.

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

Inside the mortgage company, the former employees said, pressure was intense to increase the firm's share of an exploding market for mortgages.

Michael Missal, a federal bankruptcy examiner who investigated New Century's operations after it sought Chapter 11 protection on April 2, 2007, reported last year that the firm's lax lending and accounting standards "created a ticking time bomb."

For their part, Goldman and other Manhattan investment banks could put $20 million in the till by taking a 1 percent fee for assembling, securitizing and selling a $2 billion pool of mostly triple-A rated bonds backed by subprime loans -- and that was just stage one.

Goldman entities earned millions of dollars more by servicing many of the loans and arranging sophisticated interest-rate swaps to guard against inflation.

As profits poured in, Wall Street firms extended lines of credit to New Century -- known as "warehouse loans" -- totaling billions of dollars to finance the issuance of more home loans to other questionable borrowers. Goldman Sachs' mortgage subsidiary gave the firm a $450 million credit line.

RELAXING THE RULES

Duvally, the Goldman spokesman, denied that the firm felt pressure from mortgage lenders to relax its loan quality standards to win bids on pools of mortgages. He said that Goldman's standards were at least as tough in 2006 as they were in 2002, but he declined to describe them.

Goldman Sachs Mortgage, however, published guidelines in early 2007 indicating that it would accept a "stated income, stated asset" loan for a person with a subpar credit score of 600 who was borrowing 90 percent of his or her home's value. The designation meant that although the borrower had poor credit, his or her claimed income and financial background would go unchecked.

Deep in a Feb. 13, 2007, Goldman prospectus offering bonds backed by New Century mortgages were these disclosures:

• 3,422 of the borrowers had credit scores below 600, levels that experts say could include applicants with past bankruptcies.

• 3,688 of the borrowers were required only to state their incomes, not to document them -- mortgages that became known as "liars' loans."

• More than a quarter of the borrowers had combined first and second mortgage balances that equaled or exceeded 90 percent of their homes' values at the time.

As was typical, 34 percent of the loans in the 2007 deal were in California and 9 percent were in Florida, markets where home prices were rising so fast that all the players shrugged off the risk that borrowers might default. If a loan soured, they thought, they could seize and easily resell the house without a loss.

With that philosophy, from 2004 to 2006 New Century executives relaxed their lending criteria to levels previously unimagined. The shift would have huge consequences: The looser the credit, the greater would be a torrent of loan foreclosures that would sink the housing market and force downgrades in supposedly safe subprime mortgage securities.

SCHMOOZING AND DRINKING

To make matters worse, the incentives inside New Century seemed to invite trouble.

For example, account executives, whose job was persuading mortgage brokers to steer clients to them, were paid largely in sales commissions. The more loans they secured, the more money they made.

To garner more loans, some female executives sauntered into mortgage brokers' offices wearing "short skirts, cleavage showing, looking like hotties," said Christine Fidler, a former company vice president.

Roxanne Bones, a former senior underwriter at New Century, said she was told that the women "spent a lot of time schmoozing with brokers at their offices, doing stuff with them on the weekends and getting drunk at night."

When the sales teams weren't frolicking, they were finding it easy to write loans.

New Century tossed out a requirement that every homebuyer make a down payment and began lending up to 80 percent of a property's value for a first mortgage and up to 20 percent for a second. It also lowered borrowers' minimum required credit scores into the 500s, although 700 or better is typically considered a good credit score. The nationwide average is 693, according to the consumer credit rating agency Experian.

By 2005 and 2006, ex-employees say, it got crazy.

Tim Lee, a former New Century underwriter in the Chicago suburb of Schaumburg, said his bosses relented and killed a $275,000 loan sought by a third-year kindergarten teacher who claimed a $180,000 salary. In most other cases, however, his objections led to a scene in a manager's office like this one:

Manager: "We're going to go ahead and do this loan."

Lee: "So you do it."

Manager: "No, you're gonna do it."

Lee: "I'm not going to."

Manager: "Then I'm going to write you up."

Lee said that his office processed 2,000 to 2,500 loans each month and he could recall few that weren't approved with an "exception" waiving a key financial issue that otherwise might have torpedoed the deal.

Missal's examiner's report estimated that 40 percent of the company's mortgages were "liars' loans" because any income claim on an application was accepted as truthful. A SIVA meant "some income, verified assets," but it went downhill to the NINA -- no income, no assets.

SET UP TO FAIL

The loans laid out financial terms that protected investors but punished homebuyers. They offered above-market interest rates, typically starting at 8 percent, with provisions that Lee said were "rigged" to guarantee the maximum 3 percent rise in interest rates after two years and almost assuredly another 3 percent increase through ensuing, twice-yearly adjustments.

Loan prospects with higher credit scores but otherwise dicey credentials were given options such as "pick-a-payment loans" that allowed them to choose during an introductory period whether to pay the usual interest and principal, interest only or a minimum amount.

"Everybody would pick the minimum," Lee said.

When the introductory period ended and interest rate adjustments kicked in, he said, someone who borrowed $750,000 could owe $850,000 and see his monthly payment shoot from $1,000 to $7,000.

CAUGHT IN A TRAP

New Century, like other mortgage lenders, would soon face its own cash squeeze, however.

Wall Street firms required lenders to buy back a loan if the borrower defaulted on his first payment or there was a major defect in the mortgage.

Missal's report said that New Century was faced with an "alarming" wave of payment defaults beginning in mid-2004 -- a wave that later turned into a multibillion-dollar tsunami of loans being rejected by Wall Street. New Century desperately needed cash to buy back thousands of deficient loans it had made.

In late 2006, however, Goldman Sachs and other Wall Street firms cut off the lender's credit lines. The cash squeeze halted New Century's operations and sent it careering into bankruptcy.

The lender's demise, however, didn't stop Goldman, which unloaded a $1.7 billion pool of bonds tied to New Century loans in February 2007. In May, weeks after New Century's bankruptcy filing, Goldman started selling securities backed by New Century mortgages in a secret deal based in the Cayman Islands, a tax haven for U.S. companies.

Months after the February offering, Goldman's lawyers filed additional disclosure documents with the SEC advising investors who had bought its subprime bonds of disturbing patterns: rising defaults on subprime mortgages and declining home prices.

New Century, Goldman disclosed, not only was bankrupt but was facing Justice Department and SEC inquiries.

"In response to the deterioration in the performance of subprime mortgage loans," Goldman advised, "the rating agencies have recently lowered ratings on a large number of subprime mortgage securitizations.

"... You should consider ... the risk that your investment in the offered certificates may perform worse than you anticipate."