Macquarie is today arguing that a 15-20% fall in house prices would plunge 310,000 home owners into negative equity and would cost the banks roughly $6bn in legal costs and remediation owing to breaches in responsible lending laws. That is, jingle mail:
For legal actions to eventuate, a customer would need to have suffered a financial loss and (prove) direct causation; that is, a loss was a direct result of the initial responsible obligation issue.
While these figures are substantial in absolute value and relative to banks’ capital levels, the losses are likely to be manageable given embedded equity in the housing portfolio. We also note that the market correction implied (in the worst-case scenario) would imply a 23 per cent correction for the entire market peak to trough, which appears high even in the international context experienced during the financial crisis.
