Once annuitized, It probably gets bundled together with the mortgage itself and or with other mortgages, and thus, there is no insurance. Only a commission paid back to the bank which rewards them for taking on a riskier loan than they otherwise would have at a interest rate that is lower than it should be in relation to the amount of risk on the loan...

when the loans go belly up, the house of cards starts to blow down.

Just a guess. I'd love to hear it explained better myself.

The politicians share part of the blame, becuase they are the ones who set up this system which encourages high risk loans to sub-prime borrowers.