Modify? Re-Fi? Wait for ARM to roll into new APR?

We are underwater on our mortgage – we owe $ 252K and could probably sell our home for maybe $ 230K. We have excellent FICOs (770+), have never been late, never missed a payment. Our current interest rate is 4.85%. We have no second (HELOC). We took out a 7-year “ARM” that is due to “roll over” to prime plus 4% in Sept. 2010. Our lender is BofA (e.g., Countrywide at the time of purchase).

We have received free legal opinions from a real estate attorney. Our understanding is we have one of three choices: 1) Modify (if the bank will let us, which is not likely, we’re told); 2) Re-finance (it does not look like this is an option, as our home has no equity whatsoever and we don’t want to “pay up” equity); and, 3) Wait for our ARM to roll over in 09/10 (which will happen regardless).

We want to do the right thing, but when the ARM rolls over, our payment will absolutely skyrocket. Do we have ANY recourse to MAKE the bank work with us? We have no problem with the current payment and interest, and of course are willing to pay more, but NOT prime plus 4%, which would be astronomical.

Are there “magic” words we should use, or a “magic” address I could use to write to BofA to claim hardship? I am so tired of having undocumented, unsuccessful phone calls where I am transferred here, there, and everywhere with NO fruitful answers. Thank you so much in advance!

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