Disaster Lending: "Fair" Prices, but "Unfair" Access
59 Pages Posted: 22 Mar 2018 Last revised: 22 Sep 2021
Date Written: September 21, 2021
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