Keep pushing for a loan mod... the servicer's first offer is usually not the best, and simultaneously list the home for preforeclosure short sale. You'll either get a loan mod with better terms, sell the home short, or lose it to foreclosure. You ought to consult with a bankruptcy attorney and learn about your option under bankruptcy.

If the mortgage loan was an exotic refinance, and should not have been made in the first place... you may be able to challenge the lender... and fight for better loan terms. However, you would need a comprehensive Evaluation and Recommendation.