What is the role of the Federal Housing Administration (FHA)?

The Federal Housing Administration (FHA) primarily functions to provide insurance for loans made by approved lenders. This insurance protects lenders against losses that may occur if a borrower defaults on their mortgage payments. By providing this safety net, the FHA encourages lenders to make home loans easier to obtain, especially for first-time buyers and those with less-than-perfect credit histories.

This insurance mechanism plays a vital role in the housing market by promoting home ownership and access to affordable financing options for many Americans. It reduces the risk for lenders and stimulates the overall economy by supporting the residential real estate market.

The other options do not accurately reflect the FHA's primary purpose. For instance, the FHA does not guarantee long-term commercial loans, nor does it facilitate real estate investments in a direct sense. While it plays a role in the housing market, it doesn't operate as a regulator of the market but rather as a support mechanism through its insurance products for residential mortgages.