Why not just refinance another ARM again? Or just sell the house?
They no longer qualify for a new loan (ARM or fixed rate) because they need to borrow more than the house is now worth. To make it worse, banks are tightening their lending standards (no more risky 90-100% loans) to defend their bottom line.
Homeowners can't sell because they would owe more than they get from the sale.
These people (in the millions unfortunately) are trapped.
Their banks are also trapped because those with option ARMs can legally suspend their monthly payment ('negative amortization'). The bank must keep paying the loan it took out, however so its revenues and stock value decline.
This experiment is ending badly and IMHO will result in a federal bailout as in the late 80s S&L crisis.
BUMP