[jyl]

I was thinking, HSBC probably knows your friend owns other houses, and that he is thus not without assets. That perhaps makes them more disinterested in cutting a deal. May depend on whether mortgages are recourse in VA?

Anyway, he might have to accept that he made a bad investment and take a loss. It happens.

He might also have to evaluate his other houses, and whether he should take profits (hopefully) on them now and get his cash out, live to fight another day. I note that our resident RE investors here, motion and jurgen, haven't been shy about selling their houses.

He's got to make a call on RE prices and his cash flow.

BTW, I disagree w/ those who say that walking away is verboten. We've discussed that topic before.

For you - my personal, gut feeling - is that if you can refi to a fixed now, and still cover the mortgage with rent, you should really consider it. My guess is that if by Nov 09 the economy is recovering, then LIBOR will be higher and the adjustment will be worse than a fixed rate today. If the economy is still bad by then, then LIBOR might still be low, but who knows what the condo will be worth after 1.5 years of recession. Just my 2 cents worth, or since I don't know much about your specific situation, then probably 0.2 cents worth but something to think about.