The high profit comes from the same place it comes from in any Ponzi scheme, from rapid infinite growth.  New suckers buying in provide the profits for those who are in already.  There is no value added at all.  Not even notionally.  The profit came through unloading these things onto a sucker.  

The mortgage writers would unload these bad debts (bad because unrepayable--the teaser rates would mousetrap most borrowers hopelessly) onto an investment bank (greater fool) who would cut them up and sell them to other banks (still greater fools) who would sell them to mutual funds, pension funds, town in Norway (just one example) and anyone who wanted to gamble (greatest fools all).  A deliberate side effect of the scheme was that property values inflated, making it look like everyone was getting rich and masking the fact that no value was being created.  

Since about year 2000, this Ponzi scheme has been the engine--the essence--of the US national economy.  Now it is folding up, and sure! there are dark times ahead!  

It is just the cream of the jest that when the music stopped, some big banks were still holding a lot of that paper that they had not yet thought to get rid of.  They thought the game was still going--that they still had time!  

The Fates are kind.