According to Wikipedia (some great article there on this and related topics):

VA Streamline Refinance Program

Fannie Mae… standard provides a good comparison between those who are eligible for prime vs. subprime loans. Eligible borrowers for prime loans have a credit score above 620 (credit scores are between 350 and 850 with a median in the U.S. of 678 and a mean of 723), a debt-to-income ratio (DTI) no greater than 75% (meaning that no more than 55% of net income pays for housing and other debt), and a combined loan to value ratio of 90%, meaning that the borrower is paying a 10% downpayment.

How do lenders off set the risks of dealing with subprime customers? By charging higher interest rates and fees. These fees range from higher late fees to higher over the limit fees, yearly fees and fees to sign the loan.

Refinance Mortgages

Credit cards are a similar drill. These fees compound, resulting in nice returns for lenders.

http://www.youtube.com/watch?v=_y01g-SJ62w

Why would a smart person sign up for a subprime loan? Because they can't get a prime loan. It's the same reason as why some men date and marry ugly women — usually it's because they can't land a hot chick.

Subprime loans are sometimes praised as credit repair. If you pay off your debt, you'll show yourself to be a responsible borrower and you'll become eligible for prime loans.

What'll keep a bloke from getting a prime loan?

* Two or more loan payments paid past 30 days due in the last 12 months, or one or more loan payments paid past 90 days due the last 36 months;
* Judgment, foreclosure, repossession, or non-payment of a loan in the past;
* Bankruptcy in the last 7 years;
* Relatively high default probability as evidenced by, for example, a credit score (FICO) of less than 620 (depending on the product/collateral), or other bureau or proprietary scores with an equivalent default probability likelihood.
* Accuracy of the credit line data obtained by the underwriter.

http://www.youtube.com/watch?v=_y01g-SJ62w

Subprime lending (also known as B-paper, near-prime, or second chance lending) is lending at a higher rate than the prime rate. In the US, the term "subprime" in mortgage lending, refers to loans that do not meet Fannie Mae or Freddie Mac guidelines. While often defined or defended as lending to borrowers with compromised credit histories, the Wall Street Journal reported in 2006, 61% of all borrowers receiving subprime loans had credit scores high enough to qualify for prime conventional loans.[1] It may or may not reflect credit status of the borrower as being less than ideal and may not even reflect the interest rate on the loan itself. The phrase also refers to banknotes taken on property that cannot be sold on the primary market, including loans on certain types of investment properties and certain types of self-employed persons.

Subprime lending is risky for both lenders and borrowers due to the combination of high interest rates, allegedly poor credit histories (which can be extraordinarily inaccurate) and potentially adverse financial situations that are sometimes associated with subprime applicants. A subprime loan is offered at a rate higher than A-paper loans due to the perceived increased risk. Subprime lending encompasses a variety of credit instruments, including subprime mortgages, subprime car loans, and subprime credit cards. The most abusive subprime lending practices are, arguably, short-term "payday" loans.

Subprime lending is highly controversial. Opponents alleged subprime lenders engaged in predatory lending practices such as deliberately targeting borrowers who could not understand what they were signing, or lending to people who could never meet the terms of their loans. Many of these loans included exorbitant fees, hidden terms and conditions and frequently lead to default, seizure of collateral, and foreclosure.