Unemployment rates aren't high enough to make a 70% default rate plausible. You can't just walk off from a mortgage because you'd rather buy a big-screen TV. The current value of a house has no effect on whether you afford the mortgage or not, just whether you want a mulligan.

I agree the zero interest rates are about ARMs. But at some point someone has to be prodded into once again making loans to qualified buyers. The recovery won't start until there are buyers again.