The frequency with which homeowners are asking which is worse bankruptcy or foreclosure? would almost make you believe that someone just played a cruel joke on us in 2007 and put us in a time machine with the dials set to October 1929.

With the rise of delinquencies and foreclosure for prime loans, the Mortgage Bankers Association is forecasting close to 2 million foreclosures in 2008. We all know too well that the root of the problem doesn’t lie only in the oversupply of homes and the fact that homeowners owe more than their house is worth. Compounding this problem is also the huge job loss in markets such as Michigan, Florida, Indiana and California.

What can banks do or say to help homeowners who are wondering which is worse bankruptcy or foreclosure? Before this situation really spins out of control, there are a couple of strategies that all customer-oriented banks can do to help homeowners navigate through these difficult times when their finances seem to be coming apart at the seams.

1. Banks can start by waiving late fees and penalties once payments are deemed late. When struggling homeowners are doing their best, in spite of difficult circumstances, to keep up with their mortgage payments, it’s time for banks to reconsider doing away with their built in 4% penalty in most loans.

2. Financial institutions should also look to extend loans as much as possible in order to reduce monthly payments on existing loans. This would make it easier for the many whose delinquencies are attributed to loss or reduction of income.

If the majority of banks proactively modified existing loans to reflect the above mentioned suggestions, there would be a win-win not only for banks and homeowners but the millions of investors who are losing huge sums of money on non-performing mortgage-backed securities.

Such flexible and customer-friendly strategies would also encourage more borrowers to stay in their homes even in the face of declining market values. At the very least, it would mitigate the forecasted catastrophic losses looming over our heads.

How about homeowners? Is there anything they can do to help themselves? Instead of simply wondering which is worse bankruptcy or foreclosure, they need to consider an alternative option. Far from waiting for banks to take the initiative, those who still have some equity in their property and somewhat decent credit score can implement the strategies outlined in the Financial Safety System. The strategy ultimately saves homeowners hundreds of thousands of dollars in mortgage interest, improves cash flow and allows them to own their property free and clear sooner.

The best part is the strategy involves no changes in the family budget nor does it involve making extra payments the traditional way. With nothing more than an interest-only second mortgage or a low interest credit card, homeowners are well on their way to implementing the most powerful equity building strategy ever invented. This strategy combined with the proactive customer-friendly approach banks can adopt, the destination set on the dials of the time machine doesn’t have to stop at the 1930s at all. This is especially so when homeowners realize that neither bankruptcy nor foreclosure have to be considered to get out of a financial crunch.