So the whole sob story can be pretty much boiled down to "my income is dwindling", give me free money! Her mortgage company would have given her the 4.2% rate. But it'll be very hard for them to forgive 50K for someone with "excellent" credit.
How about asking her family to help you out? Thats what they are there for. If you are 65 and have a daughter, she must be 40 years old. And if she can afford to live in an area where there are 700K houses, surely she can afford to throw a few bucks to her mother, until she can get through it.
Its not like its a huge amount. Her house only dropped 50K in value, so that means she is looking for about $700/mo. So get a family to scrimp together the $700, or sell your car, or bust out some credit cards, or open an equity line or get a second job(doing consulting or hell working at Walmart).
The situation is far from helpless.