"Even if Australians cant walk away from their houses like American can, if they go broke and default and the bank sells the house at a loss. The bank still in the same position as the Australian is bankrupt."
That's why Australian banks are asking for 20% deposit in cash as they want you to have a lower LVR. Or, they cross collateralise loans with other loans secured by other property so if there was a "crash" your total LVR is lower anyway, banks sell and are still in front.
Maybe if there was a "crash" of 40 - 60% they may loose money but I don't believe a crash like that will occur.
