It Starts: Subprime Auto Loans Implode (in Your Bond Fund)

... now, only three months later, Asset-Backed Alert reported that the securities have already "experienced enough collateral defaults to approach a ‘cumulative net loss ratio trigger event' set by Kroll. Should losses reach that level, Skopos would have to stop collecting excess cash flows and redirect the money to bondholders."

This would make it "difficult" for the company to keep "doing business as usual" and "virtually impossible" to raise more capital through securitization of its subprime loans. "Sources said other deep-subprime lenders including Go Financial and United Auto Credit face similar pressures due to rising losses among the loans underpinning their securitizations."

And this lightning-fast deterioration of the collateral for these securities is "feeding fears of an impending liquidity crunch in the asset class."