Your First Mortgage is Too High. There?s a Second: What do you do?

Are you in the following boat? Do you know someone who is? First mortgage is about to go up by 4% because it's on an arm. 2nd mortgage is for a balance more than the home is worth.  Let's say you have a 250,000 house, you bought at the top of the market, the heady days of 2005. You ave a $200,000 interest only first with a rate of 4.9%; the second is a fixed, 30/15 program with a rate of 11%. This is typical 10% financing at the time, and a situation. The people bought planning to refinance, with the presumption that if even half the appreciation rate continued, everything would be fine in 2-3 years. But now, that time is up. And now, the mortgage rate is going to increase by 4% because even though the prime rate was better, the margin virtually guarantees that it will go up.