We directly measure the dynamics of the HIV trans-activation response (TAR)-DNA hairpin with multiple loops using single-molecule Förster resonance energy transfer (smFRET) methods. Multiple FRET states are identified that correspond to intermediate melting states of the hairpin. The stability of each intermediate state is calculated from the smFRET data. The results indicate that hairpin unfolding obeys a "fraying and peeling" mechanism, and evidence for the collapse of the ends of the hairpin during folding is observed. These results suggest a possible biological function for hairpin loops serving as additional fraying centers to increase unfolding rates in otherwise stable systems. The experimental and analytical approaches developed in this article provide useful tools for studying the mechanism of multistate DNA hairpin dynamics and of other general systems with multiple parallel pathways of chemical reactions.