Which U.S. agency insures mortgage loans to protect lending institutions?

The Federal Housing Administration (FHA) is the agency responsible for insuring mortgage loans to protect lending institutions. This function is essential because it enhances the security of lenders against borrower defaults, allowing them to offer loans to a wider range of individuals, including those who may have lower credit scores or smaller down payments. By providing this insurance, the FHA encourages lenders to take on more risk, which promotes homeownership and makes housing more accessible to Americans.

The importance of the FHA's role in the mortgage market cannot be overstated, as it contributes to economic stability and growth by facilitating residential property financing. The agency was established as part of the National Housing Act of 1934 and has been pivotal in reshaping the mortgage lending landscape in the United States.

Regarding other options, the Federal Reserve primarily focuses on controlling the nation’s monetary policy, the Department of Housing and Urban Development oversees housing policy and urban development programs, and the Veterans Affairs provides specific benefits for veterans, including some loan programs but does not primarily function as an insurer for all mortgage loans.