(For)Bearing the Costs of Reckless Lending: Examining the State’s Response to the Irish Mortgage Arrears Crisis

Following the financial crisis of 2008, Ireland’s debt-fuelled property bubble burst with dramatic consequences for Irish society and the economy. The banking sector collapsed as a result of highly leveraged, reckless lending to households and property developers, instigating a State guarantee of the banking sector’s liabilities (€485 bn) and a recapitalisation programme (€64 bn) from taxpayers’ funds. This socialisation of private bank debt crashed the Irish economy and led to a bailout by the IMF and EU and the imposition of a series of austerity budgets. Mass unemployment, falling incomes and high levels of residual debt created the conditions for a pernicious mortgage payments crisis where almost one-in-five mortgages are in arrears and half of all mortgages are in negative equity.
In contrast to the extraordinary interventions to support the banks, responses to the mortgage arrears crisis have been muted with government, fearing moral hazard and mass defaults, emphasising forbearance by lenders rather than imposing debt write-downs. Drawing on survey data of Dublin mortgagors from 2012, this article examines the extent and type of forbearance offered by Irish lenders, distressed borrowers experiences of forbearance and their treatment by lenders. In practice, forbearance has meant borrowers remain solely responsible for outstanding debts while negating pressures on banks to repossess and re-sell properties into a market where house prices are falling and lenders risked having to crystallise losses. As such, forbearance represents a ‘do-minimum’ approach that has enabled lenders wait until financial and housing market conditions became more advantageous to their interests.