I used to believe that was the case, so i can sympathize with your position, however, it is completely and utterly false.

You believe that:

1. The bank has money
2. you go and borrow the money
3. you buy the house
4. you put up the house as collateral.

The actuality is:

1. The bank has no money
2. you get the seller to GIVE the bank the house.
3. Now that the bank has a house, it can now create "money" on its balance sheet equal to the value of the house. (this money didn't exist before)
4. the bank lends you money.
5. you pay the seller.

So, the bank never gave anything, so in actuality, there was never a contract. There was a guy who took his bank to court and got the mortgage nullified based on showing that the bank gave nothing.

There is a good video on this, but ThemTube is not letting me find it.