FormerSanDiegan pretty much nailed this by referencing the inablility of the lender to file a deficiency judgement againt the owner (loss is limited to the real estate that secured the loan).
Furthermore, the comment regarding possiblity of fraud on the application is dead on.. unfortunately many people do not understand what they are doing when they sign over IRS form 8821 and hand it to the lender.
On a stated income loan lenders were typically allowing the borrower to put whatever salary that was reqd to qualify for the loan. At closing the borrower is told to sign the IRS form and provide it to the lender (no form = no loan). This little gem gives the lender permission to pull the borrowers tax records to verify they told the truth on the loan application. In essence the lender has provided the borrower with the rope that they use to hang themselves. If the person lied the lender has recourse for fraud. I believe that scores of folks are in for a rude awakening because of this tax document, and most people have no idea that they ever signed it.
Attempting to re-negotiate the rate is a waste of time. They should get a broker who is versed in dealing with short sales pursue that route. If PMI was involved the broker should contact them..seeing how CW is listed as a second holder this was more likely a piggy back situation without PMI. If this is the case contacting CW is useless as the second is likely toast and they therefore have no incentive to help out.
