Investment bank Morgan Stanley sees a fall of 15% in Australia-wide house prices.
Saxo Bank published a worst-case scenario summarised like this by news.com.au:
‘The Reserve Bank could be forced to step in with a $300 billion bailout program to rescue Australia’s banks if the housing credit crunch accelerates into a “doom loop” that causes property prices crash by 50 per cent, plunging the country into recession.’
Then there’s the Royal Commission’s fallout.
How will the banking industry be punished?
The ABC did the maths:
‘If [Commissioner] Hayne’s view prevails, all 261,987 of Westpac’s loans might have breached the law.
‘At a maximum penalty of $2.1 million apiece, that’s a theoretical maximum fine of $550 billion — more than five-and-a-half times the bank’s current market value of $96 billion.’
Shae Russell recently warned you about the potential for a class action from borrowers.
Australia is unique to other countries in that it allows borrowers who were the victim of loan fraud committed by lenders to cancel their loan and keep their home.
This leaves the bank facing a huge loss. They have to write-off the entire loan and don’t get any house to sell.
It makes me laugh when I read things like this in The Australian:
‘I’m not so worried about residential prices. This isn’t America where people just hand back the keys when they have negative equity. In Australia, a mortgage is a commitment and most people with mortgages will work their way through the problem.’
This couldn’t be more wrong.
Australia is worse off than those few American states where borrowers could give back their keys and escape their debt.
In Australia, either the bank takes the whole loss, or the borrower is stuck in debt even after selling the home.
Imagine paying a mortgage and rent at the same time.