[Rick Lee]

If your friend didn't understand the mortgage he was getting, that's too bad for him. I doubt the bank changed the terms after it had closed. If they refinanced him for any more than 90% of the appraised value, then he should have had a lot of questions about that. And who's to say the value of the house will never get back to what the bank appraised it at? If he plans to live there for a long time, he could come out of this alright. Obviously, refinancing into a 3/1 ARM, if that's what he did, is the opposite of what most people do when they refi. The only time I would ever even think of doing that is if I knew 110% I'd be selling before the ARM adjusted and that's really dubious for a cash-out or debt-consolidation refi. Sounds like your buddy needs to take his lumps here and learn his lesson before he does this again. Such mortgages are not at all difficult to understand or even predict for adjustment. This was really a bad idea for him and he should have known better. If you think there was shenanigans with the appraiser, there might be some kind of complaint to file. But no one is forced to take out a high LTV refi, regardless of appraised value. When taking out a HELOC, USAA appraised my house over the phone based on my own word. Now the value has dropped. I'm still fine, since I put 20% down, but it's my own problem and no one else's.