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Sunday Reading: The ‘Freakonomics’ Guys Discover Cash Back At Closing

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We’ve written a couple of times about ‘cash back at closing’ scams. Today we feel ahead of the curve, because the ‘Freakonomics’ economists (Levitt and Dubner) are examining the same issue here in the New York Times Magazine.

That said, they view it through the prism of Chicago real estate, and focus on cash-back-at-closing scams intended to give the buyer enough cash back for a downpayment, so that the home does not appear to be 100% financed (Our favorite California cash-back scam involves taking the cash and walking away, letting the house fall into foreclosure).

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From the article: ‘At first glance, these cash-back transactions, while illegal, might seem a victimless crime. After all, the seller gets his house sold and the buyer gets to move in with his family.... Even the bank that made the loan comes out ahead, since it earned its fees on the transaction before passing along the mortgage to investors.

More: ‘But Ben-David argues that there are at least two potential losers. The first is the honest buyer who won’t take a cash-back offer and therefore can’t buy a house — all while the illegal cash-back transactions are artificially driving up home prices in his neighborhood. The second loser is the investor who bought the mortgage-backed securities.

Comments? Thoughts? Insights of staggering Sunday-morning brilliance?
Photo Credit: www.freakonomics.com

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