Question 63

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

The FHA primarily functions to insure home loans, particularly those that involve high loan-to-value ratios, which helps mitigate the risk for lenders and facilitates access to home financing for borrowers.

A) build low-income housing.

While the FHA supports affordable housing initiatives, it does not directly engage in the construction of low-income housing. Instead, its role is more focused on insuring loans rather than building properties.

B) make home loans with no down payments.

Although the FHA allows for low down payment options, it does not directly make loans. The FHA insures loans made by approved lenders, which can include options with minimal down payments, but this is not its primary function.

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

This option accurately reflects one of the FHA's main roles. The FHA provides insurance for loans that have high loan-to-value ratios, allowing lenders to offer financing to borrowers who might not qualify under conventional terms, thereby promoting homeownership.

D) provide homeowner's insurance to high-risk home purchasers.

The FHA does not provide homeowner's insurance; rather, it insures mortgage loans to protect lenders against defaults. Homeowner's insurance is typically a separate product that borrowers must secure independently.

Conclusion

The correct answer is option C, as it directly aligns with the FHA's mission to insure home loans, particularly those with high loan-to-value ratios, thereby encouraging home ownership. Options A, B, and D misrepresent the FHA's functions, focusing instead on aspects that are either inaccurate or secondary to its primary role in the housing finance system.