Mortgage "Crisis"

Ok, as I stated in the introductory post, I recently bought a house. Yes, I bought just before the "bubble" popped. I swear, with my luck, people should have paid me NOT to buy. Anyway, now as we hear 75 times a day, the mortgage industry is in crisis, foreclosures are on the rise, and our new fed chairman has lowered interest rates AGAIN. How does this help me? Not a bit.

Here's the situation. I got two loans when I bought my house. One for 80% of the value and one for 10%. The mortgage broker told me that I could refinance in 9 months and consolidate the loans into one because "housing prices in Flagstaff are guaranteed to go up." I'm not sure why I listen to these people---lesson to all you out there who have not purchased a house--if you are smart enough to program your VCR, chances are, you're smarter than the average real estate agent or mortgage broker! Do not take their words for anything. Not only that, but he talked me into an interest-only loan for the 80% which means I haven't built up any equity--wise choice, genius!

So now that home prices in Flagstaff have gone down, there is no chance I will be able to consolidate the two loans--so what about just refinancing the bigger of the two loans? Well the problem there is that there is a chance that the value of the home has dropped so significantly, that what used to be an 80% loan, is now a somewhat larger percentage--so I would need to come up with money to make it equal to 80%--plus I would owe the previous loan company the difference. So I thought maybe I could pay off my smaller loan with my mutual fund money and then refinance the bigger loan. Wouldn't you know it, now the stock market is plunging into the depths of hell and if I sell my mutual funds now, my return would be less than ideal.

So what's a girl to do?