Irish banks will be forced to write off chunks of their €150bn in residential home loans if the government curtails payments made to the unemployed to help with their mortgages, senior economists have warned.

The Department of Family and Social Affairs told the Sunday Tribune that limiting the entitlement period for mortgage-interest supplements was "one of the many issues" it was examining in its review of payments to the unemployed.

It said it was also looking at "all other qualifying conditions" relating to the home-loan payments.

The €150bn on the banks' books loaned to mortgage borrowers are said to be in better shape than the €90bn in troubled commercial-property loans the lenders plan to transfer to the National Asset Management Agency (Nama).

But there are growing fears that new restrictions in welfare payments to unemployed home owners and changes in the so-called 'softly-softly' or forbearance policy that allows troubled borrowers, including the unemployed, to extend the life of their mortgages will lead to a souring of the banks' home loans too.

Dermot O'Leary, chief economist at Goodbody Stockbrokers, said it would become a problem for the banks "if their forbearance is not sustained".

The huge increase in the payment of mortgage supplements by the state to the unemployed has helped banks protect their home-loan books ahead of the proposed transfer of the €90bn worth of soured commercial property loans to Nama.

The department's monthly tally shows that with an unemployment rate of over 12% at the end of July, 13,616 people were receiving mortgage-interest supplements, up from 8,091 at the end of 2008 and 4,111 at the end of 2007.

The estimated spending on mortgage-interest supplements for 2009 is forecast to rise to €40m, or €12.5m more than in 2008. The jobless rate is expected to peak at 17% next year, some economists predict.

Mortgage-interest supplements currently meet most of a monthly mortgage payment for the young unemployed because in the early years interest payments make up for the bulk of home loans.

Following a recommendation by the IMF, the draft law keeps the door open to Nama to buy distressed home loans, not only soured commercial property loans, from the banks.