What is the function of FHA insurance?

The function of FHA insurance primarily involves protecting lenders by reimbursing them for losses on loans that result from borrower defaults, which is why the selected answer is appropriate. When a borrower defaults on a mortgage that is insured by the Federal Housing Administration (FHA), the insurance provides a safety net for the lender, allowing them to recover a portion of their loss from the FHA. This assurance encourages lenders to offer loans to borrowers who might otherwise be considered high-risk, such as first-time homebuyers or those with lower credit scores.

The other options, while they address various aspects of home financing and rehabilitation, do not accurately reflect the primary role of FHA insurance. For instance, FHA insurance does not protect homebuyers from foreclosure directly, nor does it function as a means to lower interest rates specifically on FHA loans. Additionally, although rehabilitation funds are a vital part of certain programs, the FHA insurance itself does not provide those funds directly. Instead, it focuses on risk management for lenders.