Fannie Mae Modification for rental?

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I would appreciate any input. We purchased a home in 2006 for 300k in AZ. We put down 60k and a 25k pool. We lived in it over 2 yrs as a primary residence. We converted it to a rental property last July. Since then rents have gone way down where we live and we had to re-do the lease or the renters were going to leave or give them market rate rent. Because of this we cannot make up the difference between the rental income and the mortgage which is now $1200 a month. We were able to make up a $700-800 difference but this is now too much.

Bottom line: We owe 235k on first mortgage and 25k on HELOC. The house is only worth about $125k

Has anyone had luck refinancing with Fannie Mae for an investment property. My servicers PHH said they could only refinance at a lower rate for 1-2 years but will absolutely not lower the principal balance. I also took the eligibilty test on Fannie Mae site and it said I wasn't eligible. Has anyone had a different experience than this?

Thanks,