What Caused the Subprime Mortgage Crisis?

In response to Understanding the Subprime Mortgage Crisis, a reader asks:

You didn't say a word about why this whole thing happened. Banks do not normally lend to people who are bad credit risks so why did they all of a sudden decide (or were forced) into doing this? How about some words on this?

The Subprime Mortgage Crisis was caused by several factors, including

• the increase of interest-only loans,
• the invention of collateralized debt obligations (CDO's), and
• fradulent lobbying by mortgage companies.

To find out how these factors all created the current crisis, see What Caused the Subprime Mortgage Crisis?