You've Defaulted on Your Mortgage: Now What?

March 13, 2007 — -- Today the Mortgage Bankers Association will release a report of mortgage delinquency and foreclosure rates, and the national, regional and state levels.

Analysts say a crisis looms in the riskiest part of the mortgage market that caters to people with less than perfect credit.

Homeowners who took advantage of countless mortgage deals that began with low-interest rates or so-called "subprime" mortgages, which looked past bad credit, are now paying.

"If you could fog a mirror or had a pulse, you were able to get a mortgage," said Ivy Zelman, a housing analyst with Credit Suisse Group.

Now with house prices leveling, and even dropping, and mortgage rates spiking, it is a perfect storm for homeowners -- 900,000 of them are now in foreclosure.

"It was 'Don't worry about it. Worry about it tomorrow.' Well, tomorrow is here," Zelman said.

And it's not just the homeowners in trouble, it's the companies that gave those mortgages, too.

"There have been between 25 and 30 companies who've either gone out of business or plan to close up since the beginning of 2007," said Rick Sharga of Realty Trac.

With those companies crashing, and homeowners foreclosing, federal regulators now want mortgage criteria stiffened.

"Good Morning America" financial contributor Mellody Hobson weighed in on what the mortgage crisis meant to homeowners.

Most home buyers will still be able to get a mortgage, but a considerable segment of borrowers, people who were really buying homes that they couldn't afford, probably won't be able to get a mortgage now.

But that part of the market drying up isn't a bad thing, Hobson says. Most of these foreclosures are on riskier loans, like interest-only loans, to people with less than perfect credit, and they came of age when real estate prices were going sky high and interest rates were the lowest they've been.

Although it means some people won't be able to own their own home, it also means people won't be saddled with a high-risk loan that they can't pay.