Recently, the most common type of subprime loan has been an adjustable-rate mortgage known as the 2/28 ARM. Since mid-July, five of the six biggest subprime mortgage lenders stopped offering 2/28 ARMs. Suddenly, there’s a shortage of the type of mortgage preferred by about 60 percent of subprime borrowers.

A 2/28 subprime ARM has a low initial rate that lasts two years. After that, the loan resets, which means that the rate is adjusted upward or downward. At the first jump, the rate can conceivably climb 2 to 6 percentage points, causing monthly payments to skyrocket. (In practice, the first rate jump is usually on the smaller end of that scale, but it can keep rising every six or 12 months after that.)

In its place, some lenders offer 5/25 ARMs and 30- and 40-year fixed-rate subprime mortgages. In addition to that, there are “expanded approval” loan programs, which allow lenders to offer Fannie Mae-approved loans to people with blemished credit—but borrowers have to document their incomes, pay principal as well as interest, and, in most cases, pay mortgage insurance.

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