Under FHA, which entity is the largest insurer of mortgage loans?

Under FHA, which entity is the largest insurer of mortgage loans?

• A. The FHA
• B. Fannie Mae
• C. Freddie Mac
• D. The Department of Veterans Affairs

Answer: (A)

Mortgage insurance protects lenders against losses if a borrower defaults. The FHA directly insures the loan, meaning the FHA covers part of the lender’s loss when a borrower falls behind. Fannie Mae and Freddie Mac don’t insure individual loans; they buy loans and guarantee the payments on the resulting mortgage-backed securities. The Department of Veterans Affairs provides a loan guaranty to lenders, not mortgage insurance in the same sense. Because FHA provides direct insurance on the loans it approves on a large scale, it is the largest insurer of mortgage loans among these options.

Mortgage insurance protects lenders against losses if a borrower defaults. The FHA directly insures the loan, meaning the FHA covers part of the lender’s loss when a borrower falls behind. Fannie Mae and Freddie Mac don’t insure individual loans; they buy loans and guarantee the payments on the resulting mortgage-backed securities. The Department of Veterans Affairs provides a loan guaranty to lenders, not mortgage insurance in the same sense. Because FHA provides direct insurance on the loans it approves on a large scale, it is the largest insurer of mortgage loans among these options.