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

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: Suggested Citation

Begley, Taylor A. and Gurun, Umit G. and Purnanandam, Amiyatosh and Weagley, Daniel, Disaster Lending: 'Fair' Prices, but 'Unfair' Access (May 4, 2023). 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