I don’t see why cash back would be illegal. But mortgage fraud is. If you do it with the intend of defrauding the lender then it’s criminal.

If it’s done outside of closing, then there certainly is an element of concealment on your part and a prosecutor maybe able to prove fraud. If everything is on the up and up, then why not go through escrow? Remember, if it’s not documented in the sales agreement, then the seller is not obligated to pay you the cashback. Then what’re you gonna do?