Update: I stopped paying my Tahiti Village mortgage several months ago and suffered through endless harassment from their collections dept. Each time I asked about doing a "deed in lieu of" foreclosure. Each time I was told that they would not do this type of settlement.
In the final stages of the foreclosure process, someone finally offered me a DIL but I had to pay 10% of my balance and they would still report on my credit as "settled for less than amount owed."
I did a little research and found out that a foreclosure would drop my credit rating by 85 to 160 points. A settlement would still hit my credit report for 45 to 125 points. I wasn't worth it to me to pay $1, 800 just to help boost my credit rating by 40 points.
For more info check out "Deed in Lieu of Foreclosure" on Wikipedia
This new article just came out today about the impact of various types of credit issues and how they can impact your FICO score:
Do the math but it is pretty clear that foreclosure is the way to go!