Should I walk away from my mortgage or not?

I purchased my home 3 years ago in central Virginia for 216,000. We chose a (Combo Loan?) 1st and 2nd mortgage. Our 1st mortgage is for 75% of the loan (162,000) and at a rate of 6.125%, our 2nd mortage is for 25% of the loan (54,000) and at the rate of 8.875%. After living here for 3 years we currently owe about 209,000. I have made every payment on time, and have not paid any principal, just the house payment. I recently got a real estate assesment from my county saying the property/house is worth $ 166,600. We have tried to refinance but nobody will because we are so upside down in this mortgage. – Im good for the money, i just want a lower rate!!!!!! – It really makes me made that another young couple moved into a house across from us that was 1000 SF bigger than ours , 16,000 dollars less than ours, got a 8000 tax credit and a interest rate of 5%.
I guess my worry is that if i stay here and keep paying on this house, if in 5 years i go to put it up for sale what if i can only get what i paid for this place, or perhaps less? Ive also put at least $ 10,000 in this house in the last 3 years. New kitchen floor, landscaping, interior paint, all light fixtures upgraded and the list goes on. Im not sure what to do, would it be better to toss the keys to the bank and walk or just keep paying and “hope” the house will go back up in value.
Thank you both for your answers, im not having a hard time making my payments. In the end i doubt i will walk away from the house, but im doing some reading up on the idea and all.

My boryfriend and I are trying to refinance the condo in South Arlington Area in Virginia. We talked to a mortgage consultant from Well Fargo and everything was going well. We got the rate lock and had the appriaser came in. However, last week, his assitant called my boyfriend and told him that his re-finance application was rejected because the condo has high investor ratio. Nothing more and no more explanation from them.

Can anyone help me on this? The condo value is almost 80% and we are willing to put money down to get it to 80%. We are doing conventional loan and we have good credit. How can I find out if our condo has high investor ratio and can we try with different lenders? We already paid for the appraisal. I would think our mortgage consultant should tell us before we went this far.

Thanks so much for all your help.

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