What would be best for our family in an out-of-control ARM mortgage in a declining neighborhood?

We are a family of four (2 parents, 2 kids ages 12 and 8) and we live in Flint. We have lived in our 1100 sq. ft. home for 13 years now. We need a bigger house and we need to get out from our ever-rising ARM mortgage rate. We're with a terrible mortgage company who we refinanced with several years ago to pay off debt. Now the property values in our city have declined. We didn't borrow more than the value of the house; but IF we could sell our home, we may just break even. We barely make enough to make ends meet and certainly can't save anything. We asked our mortgage co. if they could lower and fix the rate but they said they can't do anything until we're behind in our payments. Should we let it get behind so they'll help us? We also have other debt we need to get paid off but can't afford to with our out-of-control house payment. The house needs a roof, windows, plumbing and a bathroom overhaul, which, of course, we can't afford. We're drowning! What should we do?