Should I try to short sale , deed in lieu or just foreclose al together?

I bought my house in 2004 for $72000, I now owe $92000 total w interest. I asked for a modification and emc mtg co lowered my pymt from $699 to $ 692 (wow) I have not paid since may and wondering what to do next? I want to keep my home but at a lower payment something around $450-$550 inc taxes/ins the value of my home is now down to $7000-12000. Why cant the mortgage lower the loan to what the actual value is. What can I do?