How much of the recent rise in foreclosures can be explained by the introduction of low downpayment, delayed amortization mortgage contracts? We present a model where heterogeneous households select from a set of possible mortgage contracts and choose whether to default on their payments given realizations of income and housing price shocks. The set of contracts consists of traditional fixed rate mortgages which require a 20% downpayment as well as nontraditional mortgages with low downpayments and delayed amortization schedules, two features which became highly popular after 2004. The mortgage market is competitive and each contract, contingent on household earnings and assets at origination as well as loan size, must earn zero expected profits. We use our model to quantify the role of mortgage innovation in the recent rise in foreclosure rates. A 20% price decline following a brief introduction of non-traditional mortgages can explain 40% of the rise of foreclosures from mid-2006 to mid-2008. If new mortgages are not introduced, the same price shock causes an increase in foreclosure rates of only 20%.