What Was the Timeline of the 2008 Mortgage Crisis?
- The U.S. Federal Reserve (the Fed) began lowering federal interest rates in an effort to restore demand for homes. At this point, however, a majority of homeowners has already purchased adjustable-rate mortgages, which put them at risk for higher interest rates that crippled their ability to pay the higher monthly payments that eventually led to foreclosure risks.
- The government raised the limits on Federal Housing Administration (FHA) loans to assist the housing market.
- The Fed introduced the Term Auction Facility, which would provide liquidity for banks. The Fed announced that it would lend out Treasury notes for bailout purposes.
- The Fed lowered the federal funds rate and repurposed the Term Auction Facility as a permanent entity, rather than the stopgap that it was intended to be.
- The Housing and Economic Recovery Act was introduced to guarantee loans, and to allow even more FHA loan guarantees, in addition to housing tax breaks and housing grants.
- Major lenders announced bankruptcy, and were acquired by other companies or were bailed out by the government. Regardless, these bankruptcies led to the decline of the financial markets.
- Fearful investors withdrew money from money market mutual funds. The Fed attempted to counter this trend by lending much-needed money to banks and businesses.
- Congress passed a bank bailout bill that allowed the United States Treasury to introduce liquidity into cash-crunched banks through the purchase of those banks' shares.
- The Fed issued direct short-term loans to businesses with low interest rates ranging from 2 to 4%. At the time, this allowed further liquidity for businesses and prevented foreclosure on some of those businesses.
- The Fed bailed out the money market funds to ensure those funds could meet their redemptions. The Fed made further bailout plans to save the economy. These bailouts were followed by an economic stimulus package designed to help stop home foreclosures.