What is a key function of the Federal Housing Administration (FHA)?

The key function of the Federal Housing Administration (FHA) is to insure residential mortgage loans. The FHA plays a crucial role in the housing market by providing insurance to lenders against potential losses incurred from borrower defaults. This insurance allows lenders to offer loans with lower down payment requirements and more favorable terms, making homeownership accessible to a larger segment of the population, particularly first-time homebuyers.

By insuring loans, the FHA reduces the risk for lenders and encourages them to provide financing that they may not otherwise extend due to the risk associated with lower credit scores or smaller down payments from borrowers. This insurance mechanism makes it possible for individuals with less-than-perfect credit or limited savings to obtain home loans, thus promoting stability and affordability in the housing market.

In contrast, other functions mentioned in the options are outside the scope of the FHA's responsibilities. For example, the FHA does not buy loans or regulate mortgage interest rates; these actions are typically associated with other entities, such as Fannie Mae or Freddie Mac for buying loans, and the Federal Reserve for influencing interest rates. Additionally, while the FHA may oversee aspects related to the loans it insures, it does not have a direct role in overseeing real estate transactions in general.