Illustration: Aïda Amer/Axios

Major banks including Wells Fargo, Deutsche Bank and others have engaged in a pattern of fraud in commercial mortgage-backed securities that is putting the whole market at risk, according to a whistleblower complaint submitted to the SEC, ProPublica reported Friday.

Why it matters: That report was published on the same day as the Fed's financial stability report, which warned the commercial real estate market could be among the hardest-hit industries from the coronavirus pandemic.

The big picture: Should there be a washout in the CMBS market it could have a major impact on the real economy, similar to what happened with mortgage-backed securities in the 2008 global financial crisis, ProPublica notes.

What they're saying: The Fed cited commercial real estate as being particularly susceptible to a major decline in asset prices because “prices were high relative to fundamentals before the pandemic,” and COVID-19 has caused major disruptions in the hospitality and retail industries, "putting the ability of these sectors to make timely mortgage and rental payments into question."

  • Those prices were artificially inflated by the banks, ProPublica reports, citing the SEC complaint, with lenders and securities issuers regularly marking up financial data for commercial properties by as much as 30% “without justification.”
  • The changes "make the properties appear more valuable, and borrowers more creditworthy, than they actually are."
  • "As a result, it alleges, borrowers have qualified for commercial loans they normally would not have, with the investors who bought securities birthed from those loans none the wiser."

Go deeper: Coronavirus is upending the U.S. mortgage market

Go deeper

Dion Rabouin, author of Markets
Aug 18, 2020 - Economy & Business

The American real estate conundrum

Reproduced from CivicScience; Chart: Axios Visuals

The housing market has been a solidly bright spot in the U.S. economy in recent months.

Yes, but: There remain serious questions about what the next phase for the market will be as the coronavirus pandemic has created an enormous amount of uncertainty about where and how people will live.

Updated 2 hours ago - Politics & Policy

Coronavirus dashboard

Illustration: Aïda Amer/Axios

  1. Politics: Ex-FDA chief: Pence campaigning after COVID exposure puts others at risk — Mark Meadows: "We are not going to control the pandemic" — COVID-19 looms over White House Halloween celebrations.
  2. Health: Fauci says maybe we should mandate masks if people don't wear them — America was sick well before it ever got COVID-19U.S. reports over 80,000 new cases for 2nd straight day.
  3. World: Spain declares new state of emergency — Polish President Andrzej Duda tests positive for COVID-19.

Senate advances Amy Coney Barrett nomination, setting up final confirmation vote

Photo: Xinhua/Ting Shen via Getty Images

The Senate voted 51-48 on Sunday to advance the Supreme Court nomination of Judge Amy Coney Barrett, setting up a final confirmation vote for Monday.

Why it matters: It's now virtually inevitable that the Senate will vote to confirm President Trump's third Supreme Court nominee before the election, which is just nine days away.