THE US housing crisis laid bare an epidemic of fraud and sloppy paperwork on loans made to homebuyers with spotty credit. For those who bought bonds backed by the mortgages, it fuelled at least US$250 billion of losses.
Six years later, investors are snapping up a new crop of subprime bonds, this one backed by car loans. Ratings companies are awarding top grades to the securities, and buyers have almost no way to determine the accuracy of the information they get about them. Now, the market's drawing scrutiny as the US Justice Department probes underwriting and disclosure practices and the US Securities and Exchange Commission seeks to ensure investors get adequate information.