Disaster Lending: 'Fair' Prices, but 'Unfair' Access
53 Pages Posted: 22 Mar 2018 Last revised: 23 Mar 2020
Date Written: March 19, 2020
We find the Small Business Administration's disaster-relief home loan program denies significantly more loans in areas with larger shares of minorities, subprime borrowers, and higher income inequality. We find that risk-insensitive loan pricing -- a feature present in many regulated and government-run lending programs -- is a primary driver of these disparities in access to credit. The differences in denial rates are disproportionately high compared to private-market lending and government-insured risk-sensitive loan pricing programs. Thus, despite ensuring "fair" prices, the use of risk-insensitive pricing may lead to "unfair" access to credit.
Keywords: credit access, discrimination, income inequality, government lending, unintended consequences
JEL Classification: G21, G28, H81, H84
Suggested Citation: Suggested Citation