Disaster Lending: “Fair” Prices but “Unfair” Access

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 with 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. This paper was accepted by Victoria Ivashina, finance. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2021.03199 .