No, I guess the securities' holders (or their insurers, I guess) do ultimately end up in possession of the collateral. There's this from July, 2007:

"The local mortgage lender went bankrupt…the house was repossessed and sold for half the previous price. Then, rented out, its condition deteriorated. The paint flaked off. The concrete cracked. Possums moved in to the backyard.

And now, the proud owner is Bear Stearns (NYSE:BSC). The second biggest underwriter of mortgage-backed securities in the United States is rapidly becoming also a major owner of split-levels, neo-colonials, and Spanish-style bungalows. . . .

"Bear Stearns and its affiliates are listed as buyers of at least 53 homes so far this year in San Diego County, California, 48 in Maricopa County, Arizona, and 40 in Cuyahoga County, Ohio, according to a search of property records.

" . . . Merrill, the third-biggest securities firm by market value, and its mortgage unit, First Franklin, took possession of at least 87 homes this year in San Diego County, California. Citigroup and affiliates are the new owners of at least 47 homes in Clark County, Nevada."