Types of subprime loans

Borrowers with tarnished credit were offered complex mortgages that often made it possible for them to get financing or lowered their monthly payments, but often contained hidden costs.

Following is a list of some of these types of subprime loans:
* The "2/28 loan" offered a low rate for the first two years that would then would jump by as much as 6 percentage points. Borrowers ideally could clean up their credit and refinance the loan before rates rose. That produced a second windfall for the broker, and triggered thousands of dollars in prepayment penalties for leaving the original loan.
* Interest-only loans engineered low monthly payments by postponing repayment on the principal. These loans grew from 2 percent of the market in 2000 to 25 percent in 2005, according to the Federal Trade Commission.
* The option ARM offered a low payment that didn't even cover interest costs, leaving the borrower deeper in debt each month.
* Fixed-rate loans could be spread over 40 or 50 years, beyond the traditional 30-year period.
* Those who hadn't saved for a down payment could take out two mortgages at once to cover the entire cost of the house.