@Fmr Lwr Developer. In order to refinance into ARM you will need to bring the loan to current market value. For 99.9% of homeowners out there it means paying another 20-30% of loan principle down, with CA$H. Even those with money are currently debating whether to just walk away, they are not going to sink another $100K into an underwater loan, to "save" $500 per month. Most of them are not paying and just squatting! Just Google local news, there are documented cases of people squatting for 3,4, 5 years. Heck, I myself know friends in LWR who have not paid for 2-3 years, and will likely remain in the properties for another 5 years or longer. Banks can't foreclose because A)they can't as MERS messed up title chain and B)they would rather not recognize the loan losses and keep kicking the can down the road. FASB rules now allow banks do this. All defaulted loans are carried at 100% of "fantasy" values!
As to your fantasies about people buying in Florida, the boom days are over. You are applying 2005 baseline projections to future sales, which means you know diddly squat about the economic drivers. Sales went through the roof because it was a GREAT FLIP, not because people would want to live in LWR. There are almost no jobs here which could sustain $100/sq tf prices. The rich retirees buy country club and waterfront properties - those might remain popular. As to the 2,000 sq ft boxes on 0.02 sq acre "parcel" where you can hear your neighbor fart, no thank you. Please note I am not in real state, just another finance guy with deep pockets.