Which agency primarily insures or guarantees loans rather than purchasing them in the secondary market?

• A. Federal Housing Administration
• B. Department of Veterans Affairs
• C. Government National Mortgage Association
• D. Federal National Mortgage Association

Answer: (A)

The key idea is mortgage insurance or loan guarantee—not buying loans in the secondary market. The Federal Housing Administration insures mortgage loans made by approved lenders, which protects the lender if the borrower defaults. This insurance lowers the risk for lenders and helps borrowers obtain loans with favorable terms.

In contrast, the Department of Veterans Affairs provides a loan guarantee to eligible veterans, which is a guarantee on the loan rather than insurance of the mortgage itself. Ginnie Mae guarantees the timely payment on mortgage-backed securities backed by government-insured or guaranteed loans, not the original loan itself. Fannie Mae and Freddie Mac purchase loans in the secondary market to pool and securitize them, which is purchasing, not insuring/guaranteeing.

So, the agency that primarily insures loans rather than purchasing them in the secondary market is the Federal Housing Administration.