At least in the US, it's not quite like that. There typically -are- penalties for certain things (i.e. if a loan goes into default or gets paid off via a refina

At least in the US, it's not quite like that. There typically -are- penalties for certain things (i.e. if a loan goes into default or gets paid off via a refinance within X months) as well as regulatory rules and the ever-present GSEs, Fannie and Freddie. As long as the loan is 'conforming' (which the majority of loans on the up-and-up are) then Fannie or Freddie will guarantee it. Conforming loans must meet a number of criteria (Debt to income, income versus home value, etc.) to have a level of trust that the borrower will repay. Edit: And yes, if you get caught selling a non-conforming loan to Fannie/Freddie (i.e. underwriting discrepancies) you can get fined and forced to buy back the loan. In fact sometimes they will go on fishing expeditions and companies will have to prove their innocence, almost like an IRS Audit. There is also the 'servicing' aspect of a loan. Servicers basically collect payments for loans and forward them on to whomever backs the Mortgage. For Fannie/Freddie loans, what this means in case of a default is that the servicer will have to 'front' the money; this is what the housing industry was worried about at the start of COVID: before the guideline changes related to the virus, there were concerns about liquidity in that 'gap' between forbearance and (potential) forclosure.