How did I get into this mess? Should I stop paying my mortgage? Help?

Hello readers. This is not easy to write. Like many of you the current credit, mortgage, housing crises has finally hit me hard! And it is hard to admit that as a real estate agent myself I cannot figure a way out.
Problem: I bought a second single-family home in Richmond, California in 8/2005. I refinanced in 4/2006 and now I cannot make the mortgage payments and I need to decide whether to continue making payments or not. I have to make this decision by May 15, 2008.
I have invested a lot of time researching what the consequences may be, and I have found out that there are a lot of contradictions in the opinion of experts.I have patiently waited to see what comes out of Congress or the Lenders but nothing so far has helped.
Background: In 8/2005 a friend and I bought a house for investment purposes in Richmond. The goal was to buy and hold and eventually sell at a profit.We did not speculate, we did not lie to get our loan, we did not over buy. We bought something that we could afford and responsibly pay for. We bought a moderate house less than $400,000. The only possible mistake was that we ended up getting a 2 year fixed loan after which it would adjust. This loan was obtained from Fremont Savings Bank.
Then my friend lost her job and could no longer help make the payments. I continued paying it on my own. Then in 4/2007 I was able to refinance. I say that I refinanced just in time, because a few weeks later the whole mortgage/credit crises hit hard. Suddenly this house loss about 40% of its value. I had 10% equity at the time of refinance, but when the value dropped I lost all equity.
Overnight it seems that houses around my house were now worth 50% of less. And signs of foreclosures, and boarded up houses starting appearing.
Still I made my payments. As a real estate agent I was still closing transactions. There were still buyers, sellers, borrowers and mortgage CREDIT. But then the buyers dried up. And those that wanted to buy could not get loans. So my income went down. As I write this I have about 6 Short Sales transactions going on but either buyers cancel or the Lenders refuse to negotiate.
Since 12/2007 I still made my payments, but I knew I was heading for trouble so I started to call my lenders, Bank of America and Washington Mutual to see if I could modify terms. They refused then and continue to refuse to negotiated. They tell me that I first have to stop paying my mortgage before they talk to me about loan modifications, short sale, etc.
I called the many counseling help lines, and still no help. Everyone tells me that as long as I pay my mortgage then the lenders have no reason to negotiate anything.
In Summary: And so my house is worth much less than I owe. There are too many houses for sale, and now I have to decide whether I stop paying my mortgage in order to get the Bank's attention. But this has consequences:
The Consequences: I have researched the California foreclosure laws, my loan contract,the new and proposed State and Federal laws and nothing seems clear.
If I let the lender foreclose on or short sale my house, what are the tax consequence? Since it is not my primary home.
Will the lenders foreclose and stop there, or will they try to go after my primary home.
If I stop making mortgage payments in order to begin the process of getting the banks' attention, I will need to ruin my credit score. And this then has a lot of other consequences.
Responsibility: I know that I am responsible to pay this mortgage. However, the decrease in value of my house wasn't of my doing. Also, the lenders don't want to extend credit even though my FICO score is (as of 3/08 it was 756) very good since they think values will still go down. I also see the Federal Government is rescuing major banks, lenders (persuading Bank of America to buy CountryWide under favorable loan rates, helping JP Morgan buy Bear Sterns, etc).
From a purely investment perspective it doesn't make sense to keep the house. In my opinion, it will be at least 10years , if ever, bythe time my house goes back up to its current loan value.
And I have to decide whether I will make the mortgage payment to Bank of America (1st) and Washington Mutual(2nd) by May 15, 2008 or begin to let this nightmare finish.

The real estate meltdown and life changes -a private note.

Hi everyone. I want to share parts of an article I wrote recently for LatinoWebWatch on online marketing for Latinos. I was reflecting on the current state of real estate and my career as a Broker and an Online Real Estate Marketing:

I work as a real estate broker in San Francisco, but I am hoping that I can make Online Marketing my full time profession(ie. money making job). Online Marketing is my passion and my hobby but until recently I have been so busy with real estate and mortgages. I am still quite busy, however, I see the writing on the wall--the home buying and home financing industry has dramatically changed. And I think that these industry/consumer changes are economical and STRUCTURAL. You see, with the high number of foreclosures, the short sales epidemic, the credit crunch and election year politics the real estate and mortgage industry has changed. New laws are being created that may over regulate, that may eliminate hard working and willing to pay home buyers from buying, and home owners from refinancing.

Oh, I forgot to add that although I am still quite busy, a lot of my work seems more like non-profit counseling trying to help customers either to refinance, renegotiate with their lenders or just try to comfort them and help them move out.

Although I like helping people, and this is one of the reasons I got in real estate [being a member of the communities I serve] I see that it will be very hard to make a living. I think that what has helped me "survive" this long is that all throughout my real estate career I have been very proactive in real estate online marketing.

Coming from an eCommerce background before getting into real estate I knew and still believe that the Internet/eCommerce will completely change the Real Estate & Mortgage business...and it has, see move.com, zillow.com, realtor.com, ziprealty.com, trulia.com, etc.

And this is all happening real time and now.. So I hope to focus more on my passion of Real Estate Online Marketing and Latino-Hispanic Online Marketing, and I hope to make a living out of my dream.

Short Sales & Taxes / Venta De Casa Por Menos De Lo Que Se debe al Banco

Very simply: A short sale is when you sell (must sell) your house for less than what you owe the bank on your mortgage.The difference between what you owe the bank and what the bank accepts as sales price may be tax by the IRS as ordinary income, capital gains. Please see a real estate tax expert.

Usted vende su casa por un "Short Sale" cuando tiene que venderla por menos de lo que le debe al banco por la hipoteca. Usted podra tener que pagar impuestos (Federlales, Estateles) en la cantidad de lo que el banco le perdona.