Try to Keep this House

From what you said, I believe that neither your hu*****and nor you are 'fang4 de kai1' people, you and your hu*****and have self-respect. This will determine how successful you will be eventually.

 

So 'forclosure' is not an option.

As to 'short sale', IMHO, it is only acceptable if your hu*****and and/or you need to move to another place. 

 

But before doing 'short sale', think about its down-side:

1. 5.5% for 30 year mortgate is pretty low. Unless you really believe US will follow Japan's path, i.e. 20-year depression. 

2. School district. I believe a 2-bedroom apartment in a good school district will cost you 800-1000/m.

3. You/your hu*****and may feel the loss of dignity. You may lose your hu*****and's respect, your child's respect. Your family is your most precious asset.

4. A bad credit score may hamper you two's effort to find decent jobs, potential employers may run credit check before hiring.

So if I were you, I will

first talk to the bank for a lower rate.

Second, increase income and save cash-outflow.