Lenders continue to act in arbitrary fashion, making up the rules as they go along, mostly because there aren't any. Here's a recent article on what happens when struggling homeowners try to work through the system: Banks selling homes out from under homeowners who attempt loan modifications.
My advice to homeowners in these situations would be to stop throwing good money after bad... hand the keys to the bank, make sure you have the rest of your assets protected in case the bank pursues you for a deficiency, and find a nice rental for a few years.
Of course, this only applies to homes worth much less than the mortgage amount. Still, foreclosures have a much clearer legal course than other avenues... and you won't have to pay taxes on forgiven debt like you would with a short sale or loan modification.
Your credit will suffer more with a foreclosure - but it will also recover with time. Credit got us into this mess, and there's no reason to think it will help get anyone out.
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