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Average Score: 43%

One of the primary functions of the Federal Housing Administration (FHA) is to

Rationale

One of the primary functions of the Federal Housing Administration (FHA) is to insure home loans with high loan-to-value ratios.

The FHA provides insurance to lenders against losses on loans made to borrowers, particularly those with higher loan-to-value (LTV) ratios. This function promotes homeownership by reducing lender risk and enabling more individuals to qualify for loans.

A (build low-income housing) YOUR ANSWER

While the FHA supports affordable housing initiatives, its primary role is not to directly build low-income housing. Instead, it focuses on insuring loans that allow individuals to purchase homes, which may include low-income borrowers but does not involve construction activities.

B (make home loans with no down payments) YOUR ANSWER

The FHA does not directly make loans; instead, it insures loans made by approved lenders. Although FHA loans can offer low down payment options, the FHA itself is not responsible for making these loans. The emphasis is on providing insurance rather than lending directly.

C (insure home loans with high loan-to-value ratios) CORRECT

This is the correct choice, as the FHA's core function is to insure loans for borrowers who may not have large down payments, thereby allowing lenders to offer mortgages with higher loan-to-value ratios. This insurance reduces the risk for lenders and promotes broader access to home financing.

D (provide homeowner's insurance to high-risk home purchasers) YOUR ANSWER

The FHA does not provide homeowner's insurance; its focus is on mortgage insurance for lenders. Homeowner's insurance protects property against damages and is typically purchased separately by homeowners, reflecting a distinct area of financial protection unrelated to the FHA's lending insurance role.

Conclusion

The Federal Housing Administration's primary function is to insure home loans with high loan-to-value ratios, which facilitates access to homeownership for borrowers with limited down payment capabilities. While it contributes to affordable housing efforts, its main role is risk reduction for lenders, ensuring more individuals can achieve homeownership despite potential financial barriers.

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