Tuesday, July 17, 2007

Freak-o-riffic (Y2/M3/D17)


Hello Freaks!

Erm... Welcome people who came here from Freakonomics.com?

Okay, whatever the proper salutation, apparently the good people at Freakonomics.com blogged about my commission-cutting-caper post on L.A. Land (the best blog ever!) and now lots of people (Hi!) are finding themselves here. One Gentle Reader spent 120 minutes here. Even I can't spend that much time here but I digress...

While I was perusing Freakonomics, I came across a highly interesting post by Mssrs. Dubner & Levitt (who brought the sexy back to economics) in the NYT on cash-back-at-close real estate deals (one of my favorite topics). They write:

"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. The real estate agent, the mortgage broker, the attorney and the appraiser are all paid their commissions or fees. 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.

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...

There’s a third potential loser as well: the subprime buyer who does accept the cash-back payment but still ends up defaulting on the loan."

Read the whole article here.




2 comments:

Anonymous said...

Hi, I came to this site from Freakonmics.com. After browsing some of your recent posts, I have to say I'm glad I don't live in your part of the country. I just closed on a 2000 sq. ft. house just outside of Charlotte for $177k, and I thought I was spending a lot.

Kate said...

Hi Anonymous:

$177k is a lot of money! Don't let anybody tell you differently. :-)

But I certainly appreciate your sympathy for the dilemma that is Los Angeles housing. Thanks for reading!