The Credit Slips blog regularly posts interesting commentary about credit and bankruptcy and I recommend that any reader of this blog take a look at it.  The December 11, 2006 post by Kathleen Engel and Patricia McCoy about the nature of the sub-prime lending marketing is an insightful read.   Professors Engel and McCoy note that in the sub-prime market, consumers with poor credit must submit detailed financial information and an application fee before being approved for a loan.  By contrast, borrowers with good credit can usually get a free "good faith estimate" over the phone or by email.

Further, the actual cost of the loan - the loan origination fees, costs built into the balance, etc. - are not fully tallied until the actual closing.  Further, Engel & McCoy note that Truth in Lending Disclosures permit sub-prime lenders to advertise a rate, but do not bind the lenders to that rate.

I know from speaking to several mortgage brokers whom I know that sub-prime loans are time consuming and difficult to place.  Since the broker's commission is a function of the size of the loan, most brokers are not going to spend a lot of time fighting for the best rate.  Professors Engle & McCoy argue that the Truth in Lending laws need reform to address this situation.

I typically see sub-prime loans in Chapter 13 cases when the debtors miss a payment or two and the lender files a Motion for Relief from Stay.   Usually, it is next to impossible to obtain a readable payment history or to identify the add-on fees.

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