Back in the late 1970's and early 1980s some interesting things were happening in the world of banking.
Let's take a little trip!

 What goes out must first come in.
Lenders had written thousands of fixed-rate mortgages at 7-8-9 percent fixed rates,. These contracts with the home buyer tied up the lender's money for 15-30 years.
The practice of bundling mortgages into securities and selling them on the secondary market wasn't yet widespread, (although S&L's had begun to do so some years earlier)
If banks wanted to loan out more money- they had to bring more money in through the front door.

Meanwhile- interest rates began to rise...and rise.....and rise... from 7-8-9 percent up to 10-12-14 and briefly even higher.
Banks - needing to attract and retain depositors- had to  increase interest rates paid on savings and investment vehicles.

Deposits are generally short-term and easily withdrawn ..Sure... a toaster with your new account was nice...but what are your rates?
The bank that fell behind risked losing depositors to the better-paying bank across town, an event that could cause a death spiral once they hit their minimum reserves; a lender that couldn't write loans was a lender dead in the water.
This problem was worrisome enough for the Fed's to rewrite the rules;  reducing net worth requirements to as low as 3% and allowing certain lenders to use multi-year averages to calculate their reserves!
Lenders began scratching their heads, they were sitting in a most uncomfortable position.

Stagflation!
The 1970's and early '80s were years of inflation and a sluggish economy;  the Fed Reserve began taking a much more active role in managing the nation's monetary system. This meant banks could no longer count on interest rates remaining relatively stable- from now on they could and would change.
Banks paying double-digit interest on deposits while holding long-term loans at much lower rates?
Well- this was no way to make money!

Then the brainstorm hit.
Why not transfer that risk away from the bank and over to the borrower?
Adjustable rate mortgages- ARM's do exactly that!
 When rates go up- the bank is no longer left holding the bag, they can adjust the rate on the money they have loaned out!
Genius!

Problem was those pesky consumers.
They weren't thrilled over what the bankers had planned for them, knowing if their banker was smiling -they probably should not be-
and the early ARM's were overwhelmingly ...unpopular. There were better options.

Well then, let's find new customers!
There was a largely untapped goldmine of consumers wanting to own a home but suffering from marginal credit....others who couldn't afford what they truly wanted to buy- both locked out of the mortgage market............ Until now.

Lenders began marketing ARM's to "subprime" borrowers and those wanting to buy "a little more house" , often coupled with a hefty prepayment penalty to keep them locked in....and those borrowers responded by forming lines to sign on the dotted line.
New lenders sprang up offering nothing but 2/28 ARM's with relatively low initial rates, followed by a whopper of an adjustment.
Oh, and that 2-year prepay penalty to keep you around for when the real fun started? -that sweetie came as standard equipment.

 You'll love it! Now just sign here!
Remember the TV ads: When others say no, XXXXX says YES?
Yes! Yes! Yes! The purchase and Cash-Out ReFi boom was on!
New homebuyers meant more demand and increasing prices.  Increased prices meant newfound equity.
 Inflated equity became the new piggy bank with more creative equity-based lending products appearing daily.
Homeowners were spending their equity like never before, option arm's even made it possible to  turn principle payments into spendable cash! 
ARM's did gain some respectability in later years as a useful tool for people in certain situations, but for the most part- they were a staple of the subprime industry with many subbie lenders offering no fixed rate product at all.

If you have one, you'll love two!
Thrilled with their newfound revenues, lenders came up with an entirely new way to double their profits- the 2-year refinance- complete with a new set of fees!
Lessee...how can we sell that?
Take the ARM's intro rate for 2 years and save save save! Put that money into an investment (absolutely nobody did) and in 2 years- refinance!
Like selling freezers to the eskimos, they'd found a way to sell another mortgage to someone that already had one!
Bless their hearts- Gotta love 'em.