It's difficult to advise without knowing more e.g. family income, family situation (kids?), ease of renting and/or selling in that area.
So this is first reaction thought..
It is unlikely that the bank will write off your debt without some penalty. So, even if you come to some "arrangement" you'll be paying the bank for some years.
And at the end of that period you'll own nothing. Not only will you not own the houses, but paying off the debt means it'll be unlikely you'll have invested in anything else. (unless you're on a massive income).
At present one house is nearly out of NE. The gross rent covers the monthly payments. Naturally, you have costs but most of them are tax-deductible.
I think it would be a pity to forsake this house.
-just seen B.B.'s post before mine. +1
The other house with a 132k mortgage is the problem. It's costing you 750 p.m minus rent plus costs. I'm guessingthe true cost of owning that property is ca. 6k p.a.
But as much as this looks how much different is that amount from the amount you'll pay the bank for their write-off arrangement.(if such a thing happens).
If it is such a drag dealing with renting why not let a company deal with the houses? I'm no fan of letting companies,but if you don't want to deal with the tenants then letting agencies are a (partial)solution to what is causing you stress. choose carefully and make sure that you are clear that you don't want to be bothered with every little problem.
If you have no stress dealing with tenants -and you can manage the amounts mentioned above then at least you'll one day own a couple of houses.
Of course if the bank offersa great write-off deal -say 50k -then take it. I'd be amazed if they do.