The credit crunch: it isn’t just for subprime mortgages anymore. Late last night, Carlyle Capital, which only recently held as much as $21.7 billion in mortgage securities, broke the news that its lenders are now ready to extract their pound of flesh.

The credit crisis has claimed another victim.

Carlyle Capital Corp. said late Wednesday it expects its lenders will seize its assets, causing the likely liquidation of the fund, which until recently owned $21.7 billion in mortgage securities.

"Although it has been working diligently with its lenders, the Company has not been able to reach a mutually beneficial agreement to stabilize its financing," the fund said in a statement.

The fund's likely collapse would be a major black eye for Carlyle Group, the powerful Washington-based private-equity firm whose executives own 15% of the fund.

Though it's registered in Guernsey, U.K., and trades in Amsterdam, Carlyle Group runs Carlyle Capital out of its New York offices.

The news comes just one week after Carlyle Group began pleading with some of the world's largest banks to hold off on margin calls and the liquidation of its mortgage assets. Several of the lenders, led by Deutsche Bank and J.P. Morgan Chase & Co. ignored Carlyle's request. Wednesday night, they began selling the fund's assets, which were committed as collateral against huge borrowings. By Monday, dealers had sold $5.7 billion of the fund's assets.

The fund said that through yesterday it had defaulted on approximately $16.6 billion of its loans, and expects to default on the rest.

Other dealers that sold Carlyle Capital's collateral included Merrill Lynch & Co. and Bear Stearns Cos., according to people familiar with the fund.

The fund's collapse shows how Wall Street's biggest players have begun playing hardball with some of their best clients. And they reveal how jittery banks have become about their own loan exposures. In the case of Carlyle, 12 banks had lent the fund about $21 billion, or $20 for every dollar of initial capital.

It also illustrates how the credit crunch has moved far beyond subprime mortgages. Carlyle Capital's portfolio consisted exclusively of AAA-rated mortgage backed securities issued by Fannie Mae and Freddie Mac. They are considered to have the implied guarantee of the U.S. government and pay par at maturity.

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