The only reason refis will dry up is if the government succeeds in shutting down Fannie Mae and Freddie Mac and thus dries up the capital for the lenders. As long as there is still competition in the mortgage market, lenders will offer refis to poach other lenders' customers and get the servicing assets on their books. They don't even have to make money on the originations, because they make money on the servicing. Lenders have survived declining markets before without a credit crunch. And declining markets usually bring declining interest rates, so not that many ARM borrowers will need to refi anyway.
A bigger problem IMO is skyrocketing local property taxes that stretched homeowners have not budgeted for and cannot pay.