Those loans are still extended today, and there are lenders like LendingClub or Prosper catering to those needs in personal loans market.
However, with their typical junk rating they're a small portion of the market, interesting only to investors with an appetite for risk.
The systemic trouble started when instead of junk those loans were rated AAA, which then opened the door to pension funds and institutional bond funds.
I wouldn't describe lending club and prosper as junk loans.
I have money invested there because I feel it's a better social use than gambling on the stock market. I see good solid 5% returns. Most of the loans are repaid quickly.
However, with their typical junk rating they're a small portion of the market, interesting only to investors with an appetite for risk.
The systemic trouble started when instead of junk those loans were rated AAA, which then opened the door to pension funds and institutional bond funds.