Here’s a piece from last spring I missed about the demise of a top sub-prime lender, New Century that fits the “Lie to Me” thesis.

former employees of New Century interviewed said there was intense pressure from bosses to approve loans, even those with obviously inflated housing appraisals or exaggerated homeowner incomes.

With Enron, we had employees we loved to hate.

The sub-prime mortgage meltdown needs a poster boy… er… 10 most wanted poster boy. I wonder who it will be.

A few weeks later, it [New Century] acknowledged that federal investigators had launched probes into the timing of the stock sales of some of its executives.

The media desperately needs to put a face on mortgage fraud. New Century would make a great candidate… although it sounds like they would lie on the application.

On the other hand, the investment bankers who bought those loans from New Century weren’t naive hicks.

Several investment banks, including Merrill Lynch, Morgan Stanley and Goldman Sachs said they rigorously examined the subprime mortgages they had bid on. Morgan Stanley, for instance, said it reviewed every loan appraisal and the credit histories of about 25 percent of borrowers.

The head of a large Wall Street bank’s mortgage group contended that his firm regularly lost out on New Century’s business because its due diligence process was stringent and it had been returning a high number of loans. New Century wanted the bank to ease its standards, and the issue became a source of friction between the companies.

“The entire industry, over time, became more lax,” he said, speaking on condition of anonymity because he was not authorized to talk about his company’s inner workings. “The more [loans] you accepted, the better relationship and the better price you would have. The name of the game was definitely volume.”

It sounds like the high level of lying on sub-prime loan applications was a open secret throughout the industry.

“Loose underwriting was not a secret,” Beyers said. “[Investment] banks had to have known what was going on. They just have too much information and sophistication at their fingertips.

Last year it [New Century] issued $51.6 billion in loans, more than any other specialized subprime mortgage lender.

In 2006! How could anyone who was watching the numbers not know that the real estate market had peaked in 2005 and it faced real downside risk?

Hat tip Jillayne Schlicke at Rain City Guide via Jay Thompson at the Phoenix Real Estate Guy.