Bank Won’t Approve Loan Re-mod: what to do?

We have two properties. We could not sell our first property (its now worth way less than what we owe) so we have it rented out. However, the rent (which is as high as it can be) does not cover the mortgage. In fact, the mortgage is $ 1,000 over what we get in rent–this should be our spending money. We have accumulated LOTS of credit card debt because we have no spending money. We have two loans (jumbo loan)on this property – one at 6%, one at 9%. About 6 months ago, we applied to both banks for loan re-modifications and they were rejected. We have not been late on any payments. Even if we moved back in and it was our primary residence, some of the programs out there would not help. It is already just at 38% of our gross income (which is the amount home foreclosure prevention programs try to get it down to). However, due to high income, we pay a lot in taxes. If you consider 40% goes to housing, 30% to taxes, and then consider insurance (health, dental, house,car), car payment, utilities, phone, cable, groceries… We do not spend extravagantly but we cannot afford paying this much. What can we do?

Also, we cannot foreclose or DH will lose his job (security clearance). I don’t think they’d approve a short-sale since there are 2 loans; the 2nd loan holder will most likely say no way.

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