Would you stay friends with a pathological liar?

My husbands close friend is a pathological liar. He is a real bad liar and it’s definitely a mental issue for him. I mean almost every sentence out of his mouth is obviously a lie. He will lie about big and small things. For example he will tell outrages lies about running from the cops and getting away and small lies about lying about what he ate for breakfast or he went to “this place” over the weekend and it’s a complete lie. Sometimes he will even tell crazy stories that include us that never happened and we will tell him it never happened and he thinks we just forget. We know he lies a lot because we are very close to his grandma he lives with who tells us he lies and we catch him all the time lying.

My husband known him since elementary school and we are now in our 20s. He didn’t realize he lied so much when they were younger. But he is now thinking back and is realizing that much he thought he knew about him was all lies. He also believes the lying has gotten much worse over time.

Besides the lying his friend is actually a decent person and we have had some fun times with him. But we do find ourselves immediately talking about all the lies he told after he leaves our house. And at the risk of sounding like a asshole we even have a secret code of squeezing each other’s hand when we know he lying because we have given up on pointing out his lies to him so we secretly acknowledge them to ourselves. We have argued with him about obvious lies but gave up because it’s a impossible argument and I think he might actually believe his own lies.

So we do care about this friend. I have know him for 12 years and my husband has know him for 20 years but sometimes the lying drives us crazy.

I guess at this point I see it as a mental illness but it one that is definitely hard to be around.