Why was the Federal Housing Administration (FHA) created?

The Federal Housing Administration (FHA) was established primarily to encourage homeownership, making it easier for Americans to purchase homes. By providing mortgage insurance, the FHA minimizes the risk for lenders, allowing them to offer loans with lower down payment requirements and more favorable terms to borrowers. This system was particularly important in the post-World War II era when a housing boom was needed to accommodate returning veterans and their families.

The presence of mortgage insurance is a cornerstone of FHA's mission, as it assures lenders that they will be compensated in case of borrower default. This approach has been instrumental in stimulating the housing market, promoting broader access to affordable home financing, and ultimately increasing homeownership rates across the country.

Other choices, such as restricting construction or implementing regulations on rental properties, do not align with the FHA’s core mission, which focuses on promoting financial assistance for homebuyers rather than regulating housing supply or rental markets. Promoting community development programs, while important, is not the central purpose of the FHA, which is distinctly focused on enhancing homeownership through mortgage insurance.