Abstract
Purpose. The purpose of the study was to assess the effectiveness of two independent variables—risk-based pricing and increased mortgage loan limit on one dependent variable, residential mortgage approval rates for low- and moderate-income households. The assessed effectiveness of these policies provides an indication of whether the policies need to be revised or if new policies need to be developed. Methodology. The study analyzed data generated from residential mortgage applications by low- and moderate-income households. The period of analysis was 1990 through 1999. The research was descriptive. The focus of this study was on policy effectiveness, and sought to determine the effectiveness of risk-based pricing and higher mortgage loan limits in increasing the mortgage approval rates for low- and moderate-income households. Findings. The study found that both risk-based pricing policies and higher mortgage loan-limit policies had positive effects on the approval rates on residential mortgage applications for low- and moderate-income households. The findings indicated that risk-based pricing policies were more effective than higher mortgage loan-limit policies in increasing the approval rate on residential mortgage loan applications. Further, the study found that the combined effects (interaction) of the two policies resulted in only a minor increase in the effectiveness over risk-based pricing policies alone. Conclusions and recommendations. The first conclusion drawn was that the results indicate that modifications of mortgage loan policies at the system level can be effective as a means of improving access to mortgage loans for target population groups. The second conclusion drawn was that risk-based pricing policies and higher mortgage loan-limit policies did not target largely different segments of the population of low- and moderate-income households. The first recommendation is that additional research be conducted to determine the desirability of retaining both risk-based pricing policies and higher mortgage loan-limit policies. A further recommendation is that additional policies be developed and implemented that will extend access to residential mortgages to a wider spectrum of such households.