Disaster Lending: "Fair" Prices, but "Unfair" Access

59 Pages Posted: 22 Mar 2018 Last revised: 22 Sep 2021

See all articles by Taylor A. Begley

Taylor A. Begley

University of Kentucky

Umit G. Gurun

University of Texas at Dallas

Amiyatosh Purnanandam

University of Michigan, Stephen M. Ross School of Business

Daniel Weagley

Georgia Institute of Technology - Scheller College of Business

Date Written: September 21, 2021

Abstract

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 an important 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

Begley, Taylor A. and Gurun, Umit G. and Purnanandam, Amiyatosh and Weagley, Daniel, Disaster Lending: "Fair" Prices, but "Unfair" Access (September 21, 2021). Georgia Tech Scheller College of Business Research Paper No. 18-6, Finance Down Under 2019 Building on the Best from the Cellars of Finance, Available at SSRN: https://ssrn.com/abstract=3145298 or http://dx.doi.org/10.2139/ssrn.3145298

Taylor A. Begley (Contact Author)

University of Kentucky ( email )

Lexington, KY 40506
United States

HOME PAGE: http://www.taylorbegley.com

Umit G. Gurun

University of Texas at Dallas ( email )

2601 North Floyd Road
Richardson, TX 75083
United States

HOME PAGE: http://www.umitgurun.com

Amiyatosh Purnanandam

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

Daniel Weagley

Georgia Institute of Technology - Scheller College of Business ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States
(404) 385-3015 (Phone)

HOME PAGE: http://www.danielweagley.com

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