Not sure where you get that information from? Banks do not insure LVR loans below 80% (albeit I recognise some small banks might, although I have not heard of that). The reason that banks used to insist on insurance above an LVR of 80% was to qualify for the 50% risk weight under the old Basel accord (Basel 1). Also, some of the banks self insure using their own in house LMI, so the losses still hit home to the bank.
You are right on securitisation but only a very small proportion (less than 5% I estimate) of current housing loans are securitised. And the nature of the structures means that excess income from good loans pays for losses on bad loans, so there is still some effective losses to the bank in these structures.
At 80% loss in value and significant foreclosure the banks would lose a fortune. As would the insurers - may be wiped out depending on the extent of their catastrophe insurance. I know they have this, but don't know much about the normal payout ratios/limits.
