It only works because the interest is amortized out to term and front loaded so that investors can distribute almost the entire mortgage payment to shareholders

It only works because the interest is amortized out to term and front loaded so that investors can distribute almost the entire mortgage payment to shareholders immediately. If the home owner pays for five or ten years you are golden. If they default you get the principle back from the loan guarantee/foreclosure and you move on and do it again. This is why MBS REITs can pay such amazing dividends.