A lender making a SubPrime loan is exposed to much more risk of late payments and default than it would if it lent the same money to a borrower in the Prime market - so it charges higher interest rates to the borrower, to compensate for this risk.

Investors in SubPrime loans (including major financial institutions and large Wall Street players) don't plan on those loans staying in their portfolio for very long: Ultimately, either the borrower is, at his or her core, a financially responsible person -- in which case they'll refinance as soon as their scores improve -- or they're not. If not, investors are in for a bumpy ride of unpredictable payment timing, default and the expense of foreclosure.

So: They price SubPrime loans as adjustable rate mortgages, where the interest rates stay fixed for two or three years, then adjust dramatically upwards.

Unfortunately, borrowers who cannot refinance (those who have not succeeded in improving their credit scores -- which means that they're still experiencing financial difficulty) face significantly higher mortgage payments when their loans adjust -- and often cannot afford to continue living in their own homes.

In many cases, SubPrime borrowers have little or no equity in their homes, since they bought them with little or no money down -- so they cannot afford to hire a real estate agent to help them sell. All they can do is walk away -- defaulting on their mortgages -- and the mortgage company forecloses on the property and sells it.

Sounds gloomy, doesn't it?

Only if they're used improperly. We use SubPrime loans for financially responsible borrowers who temporarily have low credit scores -- borrowers who will use the two or three years during which their rates are fixed to pay their bills on time and repair their credit reports. We make it clear that when the initial fixed interest rate period expires, payments increase dramatically (and show what the likely payment will be, on a truth in lending statement) and help our clients refinance into traditional mortgages at that time.