Follow Up Big Short Questions

Loved the movie and have read the book (and a few other Michael Lewis books) several times. A few questions: Burry, Frontpoint, and Brownfield made their profits by selling their swaps as they thought there would be a chance that the people on the other side of the trade would be insolvent and not be able to pay. Is that a correct statement? What really happens when a private/non-agency MBS/CDO collapses and the market price goes to $0? Let's say there are 1,000 mortgages in an MBS (or debt prod