Each lender that charges higher interest rates that the rates offered by conventional lenders is a sub-prime lender.

Sub-prime lenders are offering loans to borrowers with weaker credit and loans and certain characteristics that do not conform to Fannie Mae and Freddie Mac criteria.

For example, a bad credit borrower will be one that has less than 620 Fico, and need a loan with high LTV. Sub-prime lenders consider that the borrower qualify for higher rates - 2-3% higher than conventional loans. The wholesale cost sub-prime home loans are justified by the greater risk - for both borrowers and lenders.

Sub-prime loans, also known as paper-B funding, is more expensive because of the increased risk associated with these loans - combined poor credit history, low incomes and high interest rates.
Sub-prime lending sometimes targets minorities

Loans abusive sometimes targets lower income and / or minority borrowers are sometimes also are less educated and have difficulty understanding some more sophisticated mortgage products and features. Some of these loans may carry prepayment penalties and other expensive hidden terms that cause borrowers to default and ultimately lead to exclusion.

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