Low down payment + low interest rates + low FICO scores = default
you forgot lender created artificially high home prices.
Homes which should have been 50-150k were/ARE inflated to 300-600k.
the lenders are still making out. The recieve 1k per year a loan is modified and remains paid AND 1k for the start up.
few if any banks are doing principle reduction DESPITE HAVING BEEN COMPENSATED TO DO SO. (see bank of america, citibank, chase...)