Final answer:
True, the wave of mortgage defaults in 2007 precipitated a global financial crisis, leading to bank failures and a reduction in available credit, significantly impacting the economy.
Step-by-step explanation:
The statement is true. In 2007, there was indeed a major wave of defaults on home mortgages that threatened the financial stability of many institutions. This period marked the beginning of what is known as the Financial Crisis of 2007 and eventually led to the Great Recession. Institutions had heavily invested in mortgage-backed securities, a collection of mortgages bundled together and sold as financial instruments. When homeowners began defaulting on their mortgages en masse, largely due to the declining value of their homes falling below their mortgage debt, these securities lost substantial value. Many banks and other financial firms realized that their investments were worth much less or even became worthless, causing bank failures, bank runs, and a reduction in lending capabilities. This led to a significant economic downturn not only in the United States but also in countries such as Iceland, Ireland, the UK, Spain, Portugal, and Greece who experienced similar issues.