Subprime according to the WSJ

29% of ALL mortgages last year were high rate. High rate is defined interest rate more then 3% above US treasury bonds. All "sub prime" mortgages are high rate, but they aren't the only ones. Last year 13% of all mortgages were granted to speculators, people who didn't live in the house they were financing. 22% of all mortgages were offered "no money down".
Since banks now sell their mortgages to Wall St investors, the banks make their money off the fees loaded onto the sale at the closing. Once the mortgage is sold, the bank doesn't care if the mortgage defaults, 'cause they no longer own it. In the old days the bank put up it own money, and they took care to lend it only to borrowers that could pay it back. That is no longer true, the banks skim a nice bit of money off the top in the form of closing fees, and the Wall St investors assume all the risks that the borrower won't make his payments. The banks will now approve anything, no matter how risky or pricey.
The Wall Street buyers of mortgages collect the home owner's mortgage payments (nice chunk of change there) and borrow even more money by selling IOU's to other investors. The IOU's are advertised as safer than plain old IOU's because they are "backed" by mortgages. The more gullible investors bought this line and a lot of "securitized mortgages" thinking they were as sound as real mortgages.
Trouble is, they aren't real mortgages. The proud owners of "securitized mortgages" don't get the right to seize the real estate after the borrower misses enough mortgage payments. Early this summer the gullible investors wised up and stopped buying the "securitized mortgages", of which the most lucrative were "sub prime". Brokerage houses stopped receiving the steady stream of cash. Naturally this slowed the demand for mortgages, which made the banks less willing to write shaky mortgages, or in many cases any mortgages. This made it harder to buy and sell houses, and the price of houses falls. The average man's savings is largely in his house. When the average man begins to worry that his house ain't worth what it used to be, he begins to feel poor. And stops buying stuff. "Consumer spending", the backbone of the US economy drops, and all hell breaks loose.
In one case a clueless bank in Germany was buying US IOU's "backed" by sub prime mortgages in New Jersey using money raised in Germany by selling their own IOU's. That bank is now out of business.