How did Mortgage-Backed Securities bring down the Investment Banks

So I have been thinking about this question: given that Mortgage-Backed Securities (MBS) are risky investments, but once they are securitized and sold to investors, they are off the balance sheet of the investment banks, so why would the subprime fallouts bring down these investment banks.

I have tried to ask around, but none seem able to give me a satisfied answer. Articles from newspaper had always skipped on the mechanics, most of them offers nothing more than the old “investment banks have lost a lot of money from these MBSs, therefore they are in trouble”. But why are they in trouble if they have securitized these assets and sold them off?

After some research, I have come up with some hypothesis, and this is what I think: the investment banks buy mortgages from the mortgage underwriters, these mortgages are then pooled together before they are separated into various trenches. Each trend has a level of risk and coupon rate, much like senior debt versus junior debt, where senior debt is less risky but offers a lower yield. So the ibanks resell these mortgages of various trenches.

Now, ibanks retain some of these mortgages, and as it turned out, they retained the ones in the lower trench – the ones that are the riskiest but with highest yield.

In an up market (like 2006 and 2007), most of the MBSs performed and the lower trench MBSs were the most profitable, that is why ibanks earned some record profits in 2007. However, as the market begins its downturn, some of these mortgages defaulted, and the MBSs in the lower trench were the first one to hit. So follows the problems with the ibanks.

If you have another view, or that mine is simply off the mark, I will be happy to learn from you. But please remember to explain the mechanics in layman terms.