I think 70% is a bit excessive but that's beyond the point, so long story short yes it might be a problem or at least it has been in my experience :)

The concept of an unlimited ROI was intriguing (using a hard money loan to pay and fix a buy-and-hold property and refinance after completion with essentially no money down).My questions are:1-"What happens when loans dry up such as during a recession?"

I'd bet by the time you pay that loan off you will not be able to get a loan at 4% anymore.If you are a prudent investor you should be able to earn more than 4% elsewhere (SP traditionally has returned 6%, and is the most passive investment you can make) and as RE investors we certainly seek returns in excess of this, so don't worry about paying down that mortgage so quickly.

These homes are new construction located in a dry area of Houston, TX that was not affected by Hurricane Harvey. 

I know most of BP audience was not around prior to 08 so they are not up to speed what happened..When lending dried up in 08 it not only dried up it STOPPEd and it stopped for many years.. you simply could not get an investor loan unless you were one really high earning W 2 type professional.. and or the loan product simply did not exist.

That seems excessive.  

Yea, it sucks getting 1% or less on your money but having that dry powder to deploy when you find a deal can pay off huge in the end.

Seller backed out of the deal last minute leaving me high and dry after several hundreds of dollars and time invested.

Do I want to pull all the excess cash out?  

So, by buying it for less than market value, you might be causing yourself excess capital gains taxes later on.