When could banks call in loans?

Discussion in 'Property Market Economics' started by Carol M, 20th Mar, 2020.

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  1. Carol M

    Carol M Well-Known Member

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    As Global Depression is being talked about, if property values fall a lot, eg 50% or more, how likely is it for banks to call in loans, eg at 80% LVR loan? Just wondering - would need to look back to Great Depression to find out I guess.
     
  2. croseks

    croseks Well-Known Member

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    Highly unlikely that big banks will do that.

    First stop would be maxing out their credit swaps, next stop would be government bail outs and bail ins (and since the RBA can print on demand and the amount of collateral held by the big banks, the RBA could buy them out of almost any situation). If all that fails, then they might call in your loan :)

    All assuming that you are paying your mortgage normally and can meet your loan obligations.
     
  3. Carol M

    Carol M Well-Known Member

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    Sounds reassuring. So I guess our lenders are different to the ones in Great Depression that went under? Wonder if smaller lenders would be as secure as the big banks? And agree that if our big 4 fail, that will be the least of our worries.
     
  4. Tony3008

    Tony3008 Well-Known Member

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    If the bank forecloses it crystallises its loss rather than maintaining the pretence that a mortgage will deliver. I would imagine there will be lots of strained conversations between auditors and companies of all sorts in the months to come.
     
  5. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    Not possible
     
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  6. croseks

    croseks Well-Known Member

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    US banks are different to Aussie banks.

    Standards here are more strict (even though APRA just loosened capital requirements) and a lot of the money is in housing, RE is a $7 Trillion market in Australia with only around 30% of that is mortgaged, so the big banks are in a really good position to begin with. Aussie banks have some of the best rated credit in the world.

    Credit Ratings of Australian Banks

    If our big banks fail, then literally the country will be completely belly up. Nothings impossible, but its highly improbable.
     
  7. Trainee

    Trainee Well-Known Member

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    Recently some mining towns have fallen 50% or more.

    during the gfc some lenders did actually go under.

    havent heard of banks calling in full doc residential loans where the payments are up to date.
     
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  8. Blueskies

    Blueskies Well-Known Member

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    Remember the saying if you owe the bank a million dollars you have a problem, if you owe them 100 million they have a problem.

    There is zero chance of banks calling in residential mortgages en masse. It would only serve to rapidly deflate the property market further and then they end up with a bunch of low yielding residential property on their books that they have to offload at prices that don't cover their losses. That's without even considering the political fallout.
     
  9. Morgs

    Morgs Well-Known Member Business Member

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    It isn't going to happen unless you've defaulted and exhausted all options of resolution.
     
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  10. The Y-man

    The Y-man Moderator Staff Member

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    Yes for commercial (if the tenant goes bust) - 30 days to pay back.

    The Y-man
     
  11. Lindsay_W

    Lindsay_W Well-Known Member

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    Never!
    It's not going to happen, home loans are not margin loans