What is sub-prime lending?

Sub-prime lending usually refers to the practice of giving loans to those who do not qualify for regular loans at market interest rates because of their poor credit history. Due to the increased risk associated with the takers, sub-prime loans are offered at a rate higher than market rates. These loans are risky for both, those who are giving and those who are taking, because these combine high interest rates, bad credit history, and often, murky financial situations of the takers. The current sub-prime mortgage meltdown in US refers to the rash of sub-prime housing loan defaults that began in late 2006 and has continued into 2007. The sharp rise in foreclosures has caused several major sub-prime mortgage lenders to shut down or file for bankruptcy, leading to the collapse of stock prices for many in the subprime mortgage industry. About 21% of all mortgages between 2004 and 2006 were sub-prime, up from 9% during the previous eight years. By 2006, sub-prime mortgages totalled $600 billion, accounting for about 20% of US home loan market.