Question 38

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

The Federal Housing Administration (FHA) primarily functions to insure home loans, particularly those with high loan-to-value ratios, making it easier for borrowers to qualify for loans with less upfront investment.

A) build low-income housing

While the FHA supports affordable housing initiatives, its main function is not to build low-income housing directly. Instead, it provides insurance on loans that facilitate home purchases, thereby indirectly supporting the availability of housing.

B) make home loans with no down payments

Although the FHA does allow for low down payment options, it does not specifically make loans itself. The FHA insures loans made by approved lenders, which may include low or no down payment options, but this is not its primary function.

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

This is the correct answer, as the FHA's primary role is to insure loans, especially those that have high loan-to-value ratios. This insurance protects lenders against losses, encouraging them to lend to borrowers who might not qualify for conventional loans.

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

The FHA does not provide homeowner's insurance. Instead, it focuses on insuring loans, which helps mitigate the risk for lenders rather than providing insurance for properties directly.

Conclusion

The correct answer is definitive because the FHA's main function is to insure home loans with high loan-to-value ratios, which facilitates access to homeownership for borrowers with limited resources. Other options either misrepresent the FHA's role or relate to services that it does not provide.