The credit report stays negative – reports the foreclosure for seven years and seven days after the last legal action. So after all the creditors get done with their paper work – which may be a while with todays volume of repos, then seven years + of notes on the TRW, Trans Union, and Equifax reports will include the negative item.
There will be a lot of these negative items and maybe future lenders will be more lax, but I doubt it. There is no “repairing” a public record item.
Is it is a good idea to walk away or not depends on the tax consequences and new rental costs. Between the state and fed tax relief, there is a $24,000 deduction/year. At 22% fed, and 8% state nominal tax rates, that is $7200/year that would need to be offset by an equal reduction in rent vs own. If their tax rates are much lower, then . . .
It may not be a great idea to walk and rent with todays variable credit card interest rates. When a foreclosure triggers a higher rate, who know?