[Rick Lee]

I was shootin' it with a neighbor last week who told me how crushed he was on one of his investment properties. He's not a flipper. I think he bought each house, lived in it a while and then rented it out. He has at least three now, I think four. One of them was on a 3/1 ARM with HSBC. His payment went from $2600 to over $4000 on the first adjustment period, and I suspect that's even with a drop in prop. taxes. This was not some exotic teaser ARM, but rather I think a LIBOR. So now, despite his down payment, he's almost upside down on the house and can't raise the rent. So he's around $1600 a month negative. He tried to get HSBC to work with him, either freeze the rate or refi at 100% LTV. They said no dice. He's actually thinking of mailing in the keys. He already has other houses, so he has options for where he wants to live. And it's not even that he wants to stop paying because the value has dropped. He simply cannot refinance, despite perfect credit and there's no end in sight for his neg. monthly cash flow.

This got me thinking. My ARM adjusts in Nov. '09, my margin is 2.25% and tied to 1 yr. LIBOR, capped at 9.25% on the first adj. period. My rate is now 4.375%, so no way can I justify refinancing, even if I could find a loan at my current LTV due to drop in value. If LIBOR doesn't move too much before my adjustment period, the new payment won't be too bad, so I should be ok. But geeze, don't banks want to work with people who could just walk away or keep paying what they've been paying? Seems to me it'd be better to get 80% of something than 100% of nothing.