Managing or mismanaging mortgage arrears? The case of the building societies

Due to changes in their lending pattern, along with wider social and economic change, building societies face increasing risk, signified by growing default. All creditors have ultimate legal sanctions against debtors but typically first initiate a non‐judicial debt collection process. This paper outlines policy and practice with regard to the pre‐judicial management for the recovery of mortgage arrears, and indicates a substantial gulf between the two. In particular the content of the ‘recovery’ strategies and relationships is examined, using qualitative data from a study of 40 defaulters followed over a nine‐month period. Procedures designed to keep borrowers out of court and within owner occupation had the opposite effect in practice in almost half the cases examined. Emphasis is placed upon late intervention, poor communication and the formulation of a recovery strategy that treats the mortgage debt in isolation from current income and expenditure. The potential contribution of managers’ underlying attitudes to debtors is raised. In the face of rising default, a number of possible explanations for an ‘underdeveloped’ arrears management process are examined.