DON'T WALK AWAY. You can either do the loan modification or short sale the home, but it is not in the best interest of anyone for you to abandon the home through foreclosure...and now more than any other time in the history of homeownership.
The Stimulus package will have lenders changing policies this month in terms which loans they have the ability to modify. And when one person on the staff says no, there is always the chance, through persistence, that the next time they will approve it. And that does not require any delinquencies in your payments for them to consider a loan modification.
Please call me if you want more details on how you can resolve this, and recover from this financial setback quickly rather than having a foreclosure on your credit report for the next 7 years.
And by the way, I don't know many properties that aren't showing negative equity in this market....the dilemma is affording the payments. Lenders are given leeway to write down principal, and/or adjust interest rates with no tax impact, as far as I understand....still waiting to study the actual 1000+ page bill.
David, there is some solutions out there to discuss further.