L J R – If I Assume the following (based on the info you’ve provided):

1. the application was legit
2. intermediate-term increase in income prospects are slim
3. He has enough savings to make about 2 years or less worht of mortgage payments.
4. unlikely to see a rebound of the property in a timeframe for which he could carry the loan with his assets
4. That all loans on the property were the initial purchase loans (no refi’s) for primary residence.
5. The loan payment is more than his current monthly income.

If it were my friend, I would recommend that he spend a small portion of my savings to contact a real estate attorney to weigh the option of walking.

Screwing over the banks, pension funds and/or other purchasers of MBS’ based on this guys poor judgment sucks, but I don’t see many other options other than bleeding away his life savings over the next 2 years.

Of course, that same logic doesn’t apply to the borrower. You thinks his risk is just the credit ding.
n_s_r – It’s not about logic it’s about the law and economic survival.