Which government agency is responsible for insuring loans?

The Federal Housing Administration (FHA) is responsible for insuring loans, particularly those aimed at helping low- to moderate-income individuals become homeowners. This agency provides mortgage insurance on loans made by approved lenders, ensuring that lenders are somewhat protected from losses if a borrower defaults on their loan. By insuring these loans, the FHA encourages lenders to offer more favorable terms—such as lower down payments and interest rates—making homeownership more accessible for individuals who might have lower credit scores or limited financial resources.

Veterans Affairs (VA) does offer a loan guarantee program specifically for veterans and active-duty military personnel, but it is not insurance in the same way that FHA insurance functions. The Federal Reserve System is primarily responsible for managing the U.S. monetary policy and has no direct role in insuring loans. The Department of Housing and Urban Development (HUD) oversees federal housing programs and administers the FHA, but it does not itself insure loans; that function is specifically provided by the FHA under HUD's umbrella. This distinction clarifies why the Federal Housing Administration is the correct answer to the question about which agency insures loans.