What is the primary role of the Federal Housing Administration (FHA)?

The primary role of the Federal Housing Administration (FHA) is to insure loans made by private lenders. This means that the FHA provides a guarantee to lenders that they will be compensated if a borrower defaults on their loan. This insurance allows lenders to offer loans with lower down payment requirements and more flexible credit criteria, making homeownership accessible to a larger number of people, particularly first-time homebuyers and those with lower credit scores.

By protecting lenders against losses, the FHA encourages them to lend more freely, which helps to stimulate the housing market and promote homeownership. The FHA does not lend money directly to consumers; instead, it works through approved lenders who hire mortgage loan professionals to originate loans. This role significantly impacts the real estate market and housing accessibility across the country.

In contrast, the other options identify functions that are not within the primary scope of the FHA’s responsibilities. For example, providing loans directly to consumers is typically the role of lenders rather than the FHA. Purchasing mortgage-backed securities is a function often associated with entities like Fannie Mae and Freddie Mac, and regulating interest rates falls under the purview of the Federal Reserve rather than the FHA.