you asked since the mortgages are fixed, why do people default.

There are two scenarios;

1. In North America, during recent years, falling interest rates have become a rule rather then exeption. As such, people chose to sign floating rate mortgages which tracks the Prime rate and loads it. For example, people signed floating mortgaes at Prime + 0.25% with understanding that their interest rate will change as prime changes.

If the interest rates suddenly skyrocket, and reaches soemthing called a triggering rate, their payment will go up and they may not be able to make the monthly payments. The triggering rate is the interest rate at which their payment does not cover the interest charged on their loan.

2. The second situation is where the loan is on fixed percentage and the property value falls such that loan becomes larger than the value. In these cases, Banks call in the loan or ask the loanee to deposit X amount of dollars to bring the loan value back to being lower then the value of security. Surprising some people do not have that much cash floating around :) and declare bankruptcy.

Both of these scenarios result in distress sale of property and overall reduction in property values.