Well, some of the larger loans are for investment sakes, if you think about it, every investment is a risk, and the people who allow the loans to go through take a risk on those people they loan to, if the investment works out then the loaner makes money. I'd say it's greed at its finest. The mortgage companies were giving out loans like it was nothing because they saw an opportunity to make a lot of money, the American Government even gives out loans because they see the fact that their loans will help build the American industry which in turn create more jobs, then those workers will be paying taxes on their employment, as well as buying more goods and services, creating more sales tax, and then also will be purchasing more houses, etc.
So to answer it simply, loans keep getting distributed beyond recovery because people are not taking out responsible amounts of loans, the people who default on mortgages are people who are not planning for the future and only think at the moment. The people who distribute the loans are equally at fault allowing people with bad credit history or late payment history to take out those loans.