Today, Michael Calhoun, President of the Center for Responsible Lending, wrote a response to my August 9th Charlotte Observer op-ed entitled “Playing the Race Card.”

His
response discusses a lot about “lenders’ arguments” and how “lenders
aren’t happy about the study [CRL’s recent study on subprime loans]”
but generally he doesn’t respond to my arguments or for that matter my
op-ed (contrary to his op-ed, I’m not a lender).

————- 

Background:
Subprime loans are home loans for high-risk borrowers.  CRL’s
study alleges that African-American and Latino borrowers, even after
controlling for risk, are 30% more likely to secure more expensive
loans than whites.

————– 

My central argument in my op-ed was legislators and others should not allege,
in part based on CRL’s study, that mortgage lenders are discriminating
against African-American and Latino borrowers.  The study, even if
the data is assumed to be accurate, demonstrates at most that lending
practices have a discriminatory effect.

Ironically, the primary
theory in CRL’s own study for the differences between borrowers is a
non-discriminatory practice: yield-spread premiums.  These
premiums simply refer to the difference between the rate actually
received by a borrower and the lowest rate the borrower was qualified
to receive.  Brokers may sell a loan at a higher rate not because
of skin color, but because the rate hasn’t been negotiated down by the
borrower.

He doesn’t counter this central argument although does
manage to make this amazing statement about the 30% difference: “That
means that, even after a half century of civil rights laws, the
subprime mortgage market is not treating all groups fairly.”

It
is hard to see how this statement, especially when bringing up civil
rights laws, is not an allegation that individuals and lending
companies within the mortgage industry are discriminating.

Mr.
Calhoun does make a direct argument regarding my statement that the CRL
study is undermined by the fact that they failed to take the
debt-income ratio into account.

“Lenders use this ratio to evaluate whether a borrower qualifies for a loan product, “not” to set the price on the loan.” 

I’ll let Fed Governor Edward Gramlich’s statement on the Home Mortgage Disclosure Act data on subprime loans serve as my response:

“The new HMDA data are clearly limited: they do not include credit scores, loan-to-value ratio, or consumer debt-to-income ratio — all factors relevant to the cost of credit. Because these important determinants of price
are missing, one cannot draw definitive conclusions about whether
particular lenders discriminate unlawfully or take unfair advantage of
consumers based solely on a review of the HMDA data.” 

Mr.
Calhoun closes his response by making arguments about better disclosure
of lender information, how CRL data is used in the newspaper, and
finally that this is about “the financial wellbeing of all of us.” 

He “might” be right on these points.  I have no idea because I never wrote about them in my op-ed.