...loans have mortgage insurance? I dont see why they have loses, its the insurance companies that are losing. The Bank collects on the default loan and have the houses too!

I don't believe you have a clear picture of how mortgages work. Not all mortgages have PMI. The bank uses the property as collateral for the loan. When the property value goes down, it is possible that the loan amount exceeds the collateral value. There are costs involved in REO (bank owned) properties too.

Thats not true.