Should we walk away?

[Joel Fraser]

Hello Everyone, I am very happy I came across this site. There is so much information I feel my head is going to explode!Here goes our story. Three years ago my wife and I purchased a home in Chino Hills, Ca for 415,000 dollars. After 23 months, we decided to refinance with a family friend to lower our interest only payment and to renovate one of our bathrooms, windows, and patio. We put all the money back into the house. Now I'm not sure this is "predatory lending", but here goes. This family friend lied to us and told us that there was no prepayment penalty, that our existing loans prepay would be "taken care of" and that our home was worth more than it really was.Our new loan (a 30 year jumbo pay option arm) which was eventually bought by Countrywide had a three year prepay, and high interest. We understand that we signed all of the documents but we felt betrayed and lied to! I later found out I had to pay the 10,000 prepay penalty, when I had only one month remaining on our original loan. So our loan was now up to 455,000 dollars. Our daughter was born and we decided that it would be best if our daughter was at home with her mother. Daycare was not an option! My wife after her leave of absence, resigned as a teacher. I was the sole provider for our family. As a teacher myself, I could only afford to pay the negative amortization payment. Our loan is up to 485,000 dollars. Our house is now worth 380,000 dollars. Here is our dilemma: 1). Wife goes back to work and we place our daughter in Daycare! Pay a ridiculously high mortgage that is "underwater" and not have a second child that we would love to have. Or 2). Simply walk away! Become renters for the next 5 years or so. And ruin our credit.We have tried to modify our loan with countrywide with no success! The 1-800 hope line helped me with the process. They declined us because we were 400 dollars negative in our stated income.My wife has since been substituting adult school. She doesn't work everyday and we still cant afford to pay the interest only payment. Our loan is about to recast and we will definitely not be able to make the 4,500 payment.What do we do? Do I resubmit our income with countrywide now that my wife is pulling in a little extra? We have never been late on our mortgage and have excellent credit. It seems like pulling teeth dealing with Countrywide. I have a feeling that because I am up to date and have never been late, they are hesitant to help. Is it even worth modifying if our house is so underwater?What about these loan modification services? Are they for real? Or a scam? There is one that advertises on this site. Short refi services claim that they can get your loan to what your house is now worth, in a fixed rate, for a fee of course.I am sorry if I am rambling. I know I have asked a lot of questions. I am just at my wits end.Thank you everyone for your time!