Cash back at closing -- Mortgage fraud ?
First he built a dictionary of 150 keywords in real estate
ads — “creative financing,” for instance — that might
signal a seller’s willingness to play loose. He then looked
for instances in which a house had languished on the
market and yet wound up selling at or even above the
final asking price. In such cases, he found that buyers
typically paid a very small down payment; the smaller
the down payment, in fact, the higher the price they
paid for the house. What could this mean?
Either the most highly leveraged buyers were terrible
bargainers — or, as Ben-David concluded, such anomalies
indicated the artificial inflation that marked a cash-back deal.
Having isolated the suspicious transactions in the data,
Ben-David could now examine the noteworthy traits they
shared. He found that a small group of real estate agents
were repeatedly involved, in particular when the seller was
himself an agent or when there was no second agent in the
deal. Ben-David also found that the suspect transactions
were more likely to occur when the lending bank, rather
than keeping the mortgage, bundled it up with thousands
of others and sold them off as mortgage-backed securities.
This suggests that the issuing banks treat suspect mortgages
with roughly the same care as you might treat a rental car,
knowing that you aren’t responsible for its long-term outcome
once it is out of your possession.