Loan modification trial period. Bank didn't file with the Feds on time.

Unfortunately a loan modification is a new agreement requiring all parties to agree to the new terms. Until you have a SIGNED agreement, the bank can say, "no" at anytime. If that mortgage is the only problem with your credit, you can just pay according to the loan modification. That way you will be current under the modified loan once it is finalized. There is no guarantee they will modify the loan, but it sounds like they were ready to once and you can afford it. I would think you would have a good chance of working it out.

Once you get everything straightened out, then check your credit and maybe the bank will work with you on the credit. Even if the bank doesn't help you with your credit, one year of perfect mortgage payments can usually clean up the mortgage assuming no other debts are delinquent. If other debts are delinquent, then bankruptcy is usually the fastest way to repair your credit.