I have great sympathy for borrowers and some sympathy for the ultimate lenders.  Who I don’t have sympathy for are the agents and underwriters who peddled these wares.   I don’t know exactly what the demographics of subprime borrowers are, but I don’t think I’d be going out on limb by speculating that sub-prime borrowers would tend to be lower income, and less educated (often underpriviliged minorities I imagine as well).   By definition subprime borrowers can document less income, and have poor credit history.    Sure there are too many “rich” people spending too much money as well, but at least they have the income on paper.  Mortgage applications question your debt obligations but not one’s spending habit.
I firmly believe that borrowers in the past couple years have been sweet talked by both real estate agents and mortgage lenders to buy more house than they can really afford.   It was only a matter of time they would be drowning in home equity.   Can’t afford that house on fixed rate – no problem take interest only ARM with a low teaser rate – just refinance later.    Many in the media have placed blamed on the mortgage options available.   While the exotic mortgages resetting higher rates contribute to the problem, it’s really the people selling the mortgages.  The mortgage agent who gives me my loan today doesn’t care if I can pay my mortgage in two years nor does the agent who sells me a house as long as I can get the mortgage to pay for it today.   Both of them make their money NOW.   I don’t believe mortgage agents are looking to screw people over, but if they themselves bear none of the risk… It’s near classic moral hazard/principal agent problem.   I don’t know exactly how the compensation is structured for mortgage agents and underwriters, but ideally their compensation should be tied to how well they vet their clients.   If their clients default, they should somehow have financial repercussions.  Obviously, there are economic situations that are outside the personal control of a mortgage underwriter, but a homeowner defaulting on 2 year ARM after the teaser rate expires because rates are higher is not one of those situations.   A short term ARM is ideally intended for someone who is planning on selling quickly, and does need the guarantee of a fixed rate.   A financially savvy flipper would be good candidate, not a single mother barely scraping by as is.
Full Disclosure:  I own AHM which is a Mortgage REIT that has taken a beating in the stock market with the sub-prime debacle.  They are primarily a prime lender, though they have a fair amount of option ARMs.