A pile of loans that wasn't about the guarantee

The SBA guarantees more of a small loan than a large one. Up to $150,000 it covers 85%; above that, 75%. So you'd expect lenders to size some loans to land at exactly $150,000, and they do. The public file shows about 26,000 more loans just under the line than a smooth curve predicts.

The best test of whether that pile is about the guarantee is history. Before a 2000 law, the higher guarantee stopped at $100,000. If lenders respond to the rule, the pile should sit at $100,000 before the law and move to $150,000 after it.

The first version of that chart was messy. A pile at $150,000 was already there two years before the law changed.

The answer was in a column called ProcessingMethod. Two SBA programs had their own maximum loan:

• Low-Documentation loans (LowDoc, through 2005): a ceiling that started at $100,000 and later rose to $150,000;
• a Gulf Opportunity pilot (2006 to 2014): a ceiling of $150,000.

When a program's ceiling is $150,000, its loans pile there because that's the most anyone could borrow, whatever the guarantee does. LowDoc's ceiling also moved from $100,000 to $150,000, which can mimic exactly the migration the test looks for.

Taking out those 127,841 loans changed the picture. The pile at $150,000 is small through fiscal 2000, about 3 to 4 bins' worth, and jumps to 12 in fiscal 2001, the first year under the new law. The main estimate barely moved (b = 48.6 instead of 49.6), but the evidence that it's about the rule got much stronger.

The general lesson: before reading behavior into a pile, check whether some rule other than the one you're studying puts a hard limit there.