What does the FHA do with respect to mortgage lending?

The Federal Housing Administration (FHA) plays a crucial role in mortgage lending by providing mortgage insurance to lenders. This insurance protects lenders against losses if borrowers default on their loans, which encourages them to offer loans to individuals who might not otherwise qualify, such as first-time homebuyers or those with lower credit scores. The FHA sets standards for construction and underwriting, helping to ensure that loans meet certain quality criteria.

Additionally, the FHA facilitates homeownership by allowing borrowers to make smaller down payments, as low as 3.5%, and provides flexible credit requirements. The FHA's involvement in the mortgage market helps promote access to affordable housing and stability in the housing market by ensuring that a broader range of people can secure financing for their homes.

Other options like "Federal housing authority," "Federal housing agency," and "Federal housing association" do not accurately reflect the specific organization that oversees these functions in the mortgage lending space. Thus, the correct choice reflects the agency's name that is accurately recognized in the context of mortgage lending and housing financing.