What is the role of the Federal Housing Administration in today's real estate market?

The Federal Housing Administration (FHA) primarily serves to provide insurance for lenders against borrower default. This insurance encourages lenders to offer loans to higher-risk borrowers who might not qualify under conventional lending criteria. By taking on this risk, the FHA aims to promote homeownership, especially among first-time buyers or those with less than stellar credit.

When a borrower defaults on an FHA-insured mortgage, the government covers a portion of the loss incurred by the lender. This reduces the perceived risk associated with lending to buyers who might otherwise be unable to secure funding. As a result, FHA-backed loans often come with lower down payment requirements and more lenient credit score criteria compared to conventional loans, making homeownership more accessible.

While the FHA plays a key role in fostering fair housing practices, its primary function is the insurance aspect, rather than directly eliminating discrimination in lending or controlling interest rates, which are influenced by broader market factors. The FHA also does not directly provide loans; instead, it works through approved lenders who offer FHA-insured mortgages to qualified buyers.