dont take everything out from your savings!! You don't have to stop paying the mortgage in order to qualify for the modification, may be you are not talking to the right person. Try to contact someone in loss mitigation department of your lender to talk about modifcation or contact some loan modifcation company who doesnt charge upfront fees for modification.
But If the lender is not working with you on loan modification, then do short sale, at least you can avoid foreclosure and have some piece of mind. For short sale, contact a realtor who has experienced in closing some short sale.