I am inclined to think you are confusing borrowing with fractional reserve banking.
Oh I'm pretty sure someone is confusing things, just not you or me.
bank owns property -- bank asset = 1/2 million dollar house.
bank pops 1/2 million dollars into a buyer account out of thin air, balances it with a notes receivable on their end, and covers it with the house as capital.
They then go on to publish a lot of 1/2 million dollar loans, claiming that same house as the assets they have covering the loans/promisory notes.
Loans create money on a promise to pay it back out of existence. That is to say, giving money 'back' to the bank cancels that money out with the notes receivable, except of course the part they keep, the interest paid in addition to the magic money coming & going.
When the loan fails, someone goes after the property backing it up -- in this case a 1/2 million dollar house. That's when the trouble hits, because there's still a bunch of loans that claimed an asset that's undergoing radical changes in ownership.