>>It appears that all these properties will end up belonging to the government, at some level.<<
I think this nails the whole thing. What if these folks had made all their payments, completely paid it off, and then asked for clear title? Then they really WOULD have been screwed.
They can live there ‘till they die, and then it goes to the government (I suspect) because they cannot will something they do not own.
No wonder the government let this fiasco go on.