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

The primary function of the Federal Housing Administration (FHA) is to insure residential mortgage loans. This insurance protects lenders against losses that may occur if a borrower defaults on their loan. By providing this assurance, the FHA encourages lenders to offer loans to a broader range of borrowers, including those who may qualify with lower credit scores or smaller down payments.

This role is essential as it promotes homeownership by making mortgages more accessible to individuals who might otherwise struggle to secure financing. The FHA does not lend money directly nor does it regulate real estate agents or provide housing assistance in the traditional sense. Instead, its focus is specifically on the insurance of mortgage loans, which plays a critical role in the stability of the housing market and the overall economy. By backing these loans, the FHA helps stabilize housing markets during economic fluctuations, increasing available credit and fostering home purchases.