Can I refinance if I owe more than my house is worth?

We’ve lived in our house for about 8 years now, and our first mortgage is about 195K and we have a second on it and that balance is 79K. Our first mortgage was a 5-year 4% ARM that we got in 2002. The agreement after our ARM was up was that it couldn’t go higher than 1% per year, so at that point it was still cheaper than trying to refinance. Our home equity loan (at 79K) is at 7.25% and is adjustable. We owe a total of $ 274 but when we tried to refinance last winter, our appraisal only came out to $ 234K! We were shocked, since just 6 months earlier we were thinking of putting it on the market and our realtor pulled comps from the area at that time and told us we could put it on the market for $ 330 or so.

We just really want to refinance to a fixed rate. Any advice on how to do this? Our mortgage is owned by Freddie Mac, so I don’t know if we might qualify for one of those loans through the government (makinghomeaffordable.gov). I’m not really sure what those conditions are. We are not having any problems keeping up on our mortgage payments, but we just want to avoid our rates from skyrocketing! Thanks!

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