Introduction In the early 2000s the real estate market boomed, real estate was an attractive investment and everyone was looking to buy a house. However, not everyone can afford a house and most people have been forced to take out a mortgage to buy a property. During the housing boom, banks provided subprime loans and increased risk in the housing market. These loans were not only risky but irresponsible on the part of the banks granting them, and although the people receiving the loans thought they were being helped at the time, these loans were a major reason why so many people ran out of their homes, almost crippling , economy as a whole. The risks of the real estate boom Every time an investment is made there is a risk that accompanies it, the greater the risk of the investment, the greater the expected return. The same goes for the real estate market and for mortgages issued by banks. Every loan that a bank gives to a customer is an investment. To a primary borrower, banks could lend money at a stable and fairly low interest rate because these borrowers have a low risk of default. However, during the housing boom, banks were able to make a large amount of subprime mortgages, mortgages made to lower-than-prime borrowers, with an inflated interest rate to compensate for the risk of default on these borrowers. “Overall, according to Inside Mortgage Finance, the subprime mortgage market was $600 billion in 2006, 20% of the $3 trillion mortgage market. In 2001, subprime loans accounted for only 5.6 percent of mortgage dollars.” (Kratz, 2007) Banks made loans to subprime borrowers at a lower teaser rate, offering borrowers an affordable payment because the interest rate was kept artificially low until the end of the teaser rate period…halfway through the paper. .. ... If subprime loans did not exist, all banks that issue mortgages would be guaranteed full repayment of their loan. However there will always be risk with investments and mortgages, and as always the greater the risk the greater the return, but if institutions are not responsible in weighing the risk and taking on the right amount of risk, a lot can go wrong as it happened in the past. 2008. Many institutions can be held responsible for the 2008 housing crisis, whether banks for making risky subprime loans, borrowers for risking their homes based on future assumptions such as a higher wage entitlement or the appreciation of their home, or investors purchasing mortgage-backed securities without researching what exactly these securities comprised. The housing crisis shows that everyone takes risks when it comes to investing, and everyone can pay the consequences of risking too much.