I think this is the problem: Suppose you bought a house for $100,000 and you put 10 percent down. Your mortgage is $90,000. Assume that you are fully insured with homeowner's insurance. The insurance company will pay you maybe $80,000 for the destroyed house -- but they don't pay you for the land. You still own the land. If you gave the $80,000 to the mortgage company, you still owe them $10,000. With no job and no way to pay it, the mortgagor can foreclose and take your land to get what you owe them.
Correct. Now take that thought a few steps further.
Let's assume you're the mortgage company. You have to pay lawyers to foreclose on the property, so that's good money out of your pocket.
You didn't get the mortgage payment, so that's money you loaned and never got back.
And now you own a flooded wreck that you can't sell.
Multiply that times 300,000.
Now what do you do?