Here's the scenario: Joe bought a house for $300k 5 years ago. He put it on the market for $500k last fall. Frank buys it using a 1% loan and $5k down. Joe makes a good profit on the sale and moves to Omaha. The bank that loaned Frank the money sells the loan to Freddie, who puts it in their $1T portfolio. A year later, Frank defaults because the 1% that seemed good at the time is 6% today and going to 8% next year. What happens? Foreclosure. In the mean time, the value of the house in this market has gone from the $500k that Frank was willing to pay to $450k. Frank loses his $5k, Freddie loses $45k. This ignores transaction costs, fees, unpaid interest, etc.
So: yes, it's collateralized, but the collateral is now worth less than the balance of the loan. Who is to blame in this case? Some would say Frank; I would say the bank. A lot of banks made a lot of money on the way up with loose lending standards and (probably criminal) complicity with appraisers who would write up any amount if they thought they'd get their fee paid; you reap what you sow.
/jordan