What function does the Federal Housing Administration primarily serve?

The primary function of the Federal Housing Administration (FHA) is to insure loans. This insured loan program is designed to help lower-income individuals and families access affordable mortgage financing. By providing insurance to lenders against the risk of loss if a borrower defaults, the FHA encourages lenders to extend credit to borrowers who might not qualify for conventional loans due to lower credit scores or smaller down payments. This insurance framework makes homeownership more accessible and stimulates the housing market by promoting lending to a broader range of borrowers.

While the FHA does not itself provide loans or act as a lender, its insurance program significantly reduces the financial risk that lenders face, thus facilitating more mortgage approvals for eligible borrowers. This role differentiates the FHA from other entities that may engage in activities such as guaranteeing or securitizing loans, which are distinct processes that do not specifically focus on the insurance of residential mortgage loans.