I. M. Prudent (IMP) is a low-income homeowner who bought a $110K home with a zero-down mortgage from Sleazy Banker who bundled and sold a derivative tranched as you suggested. IMP defaults and walks away having paid off $10K. The Fed Bailout Bullies (FBB) purchase the remaining debt ($100K) for $25K. The holder of Tranch A gets it all, with a $5K loss and the holders of Tranches B-D get nothing. Everybody updates their balance sheets. The sheets aren't pretty but the 'toxic paper' is resolved.
Now FBB need to either sell the property for (hopefully) more than $25K or end up eating management/security costs until they can. Some of these sell reasonably quickly and FBB recovers their costs and maybe makes a small profit. Others are in depressed areas and are vacant for a long time. Vandals break in and strip out all the copper from IMP's former house. It then becomes a crack house. Finally, FBB decides to cut their losses and bulldoze the house, sell the land for $10K and have lost $50K in other costs for a net loss.
Is this a reasonable way to view the situation?
Pretty much, except that the worst excesses (again, California Central Valley, Las Vegas and parts of Florida) weren’t really in depressed areas. They were in areas that were experiencing a major population boom (5 million new Californians in just the last few years).
These people still need a place to live. So investors will scoop up those houses at 60% and rent them out to the former owners.
Heck, here in the Bay Area you can’t find a buildable vacant lot for under $200,000 (I know, because I’ve looked), so even land prices are worth 40% of median home prices here even without a house on them.