This research examines US mortgage defaults and foreclosures and how they relate to housing price changes and unemployment. State level data are examined to exploit the wide variation in economic and housing conditions across the country, as well as differences in state foreclosure laws. In addition to examining the performance of all mortgage loans, prime and subprime mortgages are analyzed separately to assess differences in performance between the two types of mortgages. Results show that defaults and foreclosure are positively related to unemployment and negatively related to the change in housing values. In addition, large drops in home values, which proxy for negative equity, are positively related to default and foreclosure. Examination of prime and subprime mortgages shows that subprime mortgages are less sensitive to unemployment than are prime mortgages. Differences in the legal rights of lenders and borrowers across the states also have an impact on defaults and foreclosures.