Nathan Bell, Research Director at Intelligent Investor has analysed the effects of a housing bubble burst as opposed to current evidence of a bubble. He takes the recent stress test analysis done by the Commonwealth Bank that shows it could suffer up to $4 billion in losses, a small amount considering it has a $373 billion mortgage book. This could be mitigated by Lenders Mortgage Insurance (LMI), which could cover half of the losses. However, Bell notes that if every bank made LMI claims, they could amount to $7 billion, easily swamping the $3 billion in equity of the LMI providers. In other words, Genworth and QBE's LMI division would be unable to payout the full amounts and banks would suffer greater losses. Therefore for Bell, to hold bank shares, insurance companies and properties would be to put all eggs in one basket. (VIEW LINK)
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