You might want to contact the CA Dept. Of Real Estate about the performance of the loan modification company. If they still want to try to save their homes I suggest that the contact their lender directly.
Some of us work as home retention consultants for the banks. Banks are actively hiring us to encourage their homeowners to contact them and work through alternatives with them to try to work out a loan that is affordable to them. If that doesn't work, and they are forced to short sale their home then having control over the process is much less stressful that watching your home go to foreclosure.
But if you feel that this is all too much for your parents, and they really ought to consider senior housing anyway, you might want to start to investigate some of the alternatives for them. One source is a website that has all kinds of assistance for seniors, including in home care, or independent living centers, adult communities,...etc. Go to http://www.snap4seniors.com
and you can see resources available all over the country.
There are also some very nice low income facilities, like at Madison Ave near Illinois in Fair Oaks. It's just beautiful, independent living apartments requiring a maximum income per month in order to qualify.
This is just a tip of the iceberg in hitting on various aspects of your question. Just call, or write here if you need more specifics on any one particular idea.