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. 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. Inside the mortgage company, the former employees said, pressure was intense to increase the firm's share of an exploding market for mortgages that depended almost entirely on Wall Street's seemingly unlimited hunger for bigger, faster returns. 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" as it pushed for ever-higher loan production. The incentives for high-risk behavior reached all the way to Manhattan. Goldman and other 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.
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.
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. Inside the mortgage company, the former employees said, pressure was intense to increase the firm's share of an exploding market for mortgages that depended almost entirely on Wall Street's seemingly unlimited hunger for bigger, faster returns.
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" as it pushed for ever-higher loan production.
The incentives for high-risk behavior reached all the way to Manhattan. Goldman and other 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.
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.
