What is the main function of the FHA in the housing market?

The main function of the Federal Housing Administration (FHA) in the housing market is to provide insurance on loans. This insurance protects lenders against the risk of default by borrowers. By guaranteeing a portion of the loan, the FHA enables lenders to offer more favorable terms, such as lower down payments and interest rates, making homeownership more accessible for a wider range of people, particularly first-time buyers and those with lower credit scores.

The FHA doesn't directly lend funds, which distinguishes its role from that of a typical lender. Instead, it encourages lending by insuring mortgages, which reduces the risk for lenders and ultimately promotes a more stable housing market. Additionally, it does not eliminate high-interest loans; rather, its focus is on facilitating financing options for borrowers who may face challenges in securing loans from conventional lenders. The FHA's scope also does not include purchasing distressed properties, as its primary mission involves insurance rather than direct market interventions.