Subprime Mortgage: how did it led to the Great Financial Crisis of US?

Subprime mortgages are named for the borrowers that the mortgages are given to. If the prime rate for a mortgage is what is offered to people with good credit and a history of dependability, subprime is for those who have struggled to meet those standards.

In the early-to-mid 2000s, interest rates on house payments were actually quite low. more and more people with struggling credit were able to qualify for subprime mortgages with manageable rates. Real estate purchases rose not only for subprime borrowers, but for well-off Americans as well. As prices rose and people expected a continuation of that, investors who got burned by the dot com bubble of the early 2000s and needed a replacement in their portfolio started investing in real estate.

From 2004-2006, the Federal Reserve raised the interest rate over a dozen times in an attempt to slow this down and avoid serious inflation. By the end of 2004, the interest rate was 2.25%; by mid-2006 it was 5.25%.The bubble burst. 2005 and 2006 see the housing market crash back down to earth. Subprime mortgage lenders begin laying thousands of employees off, if not filing for bankruptcy or shutting down entirely.

Subprime mortgages disappeared for a while after this. But they've been somewhat rebranded, as lenders have begun selling "non-prime loans" to borrowers struggling with their credit.