There is an excellent real estate primer and reference at http://homebuying.about.com that you should bookmark for ongoing use.
http://www.mtgprofessor.com answers virtually all questions one can conjure regarding mortgages. This website is info only written by Jack M. Guttentag, Professor of Finance Emeritus at the Wharton School of the University of Pennsylvania.
This way her home is affordable to her with a lower interest rate and she benefits with a lower mortgage and a lower interest rate. If she doesn't have cash she may not be able to afford her home with her salary.
You could try the government program
there is a FREE workshop coming up in March in Novato she could go to for more information:
I wish her luck!!!
You may want to have your daughter contact the lender to start a Loan Modification.
You might want to have her get some counseling for free to help her jump through the hoops.
hopenow.com and other links are available on the website below.
So Cal Homes Realty