Prime Borrowers Used Subprime
Finally. The majority of borrowers who used subprime financing were credit borrowers, not subprime borrowers. I have thought this all along and this article in the Wall Street Journal proves it. Many subprime loans were used to speculate on real estate and many were used for the low teaser rates with the expectation to refinance the loans before they reset. This quote shows the extent of the issue:

In 2005, the peak year of the subprime boom, the study says that borrowers with such credit scores (greater than 620) got more than half -- 55% -- of all subprime mortgages that were ultimately packaged into securities for sale to investors, as most subprime loans are. The study by First American LoanPerformance, a San Francisco research firm, says the proportion rose even higher by the end of 2006, to 61%. The figure was just 41% in 2000, according to the study. Even a significant number of borrowers with top-notch credit signed up for expensive subprime loans, the firm's analysis found.

The article states that many brokers were at fault because subprime loans paid more compensation to brokers than conventional loans, and that borrowers did not understand the complexity of the loans. This may true, because no one knows how much mortgage brokers make on a loan (except the mortgage broker and there is no bigger line of BS than a "zero point" loan). But I still think a bigger issue is the mentality of borrowers. They had been borrowing and refinancing for the past ten years with impunity and saw no reason to stop. Mortgage broker greed just fed this twisted mentality. Plus, everyone knew the difference between the monthly payment amounts of a subprime loan with a low teaser rate and a conventional loan with a higher mortgage rate. Mortgages were viewed as short-term way to play a house's appreciation, not a way to build long-term equity. When houses stopped appreciating the the game of financial musical chairs was over.