What is a primary reason FHA loans are favorable to lenders?

• A. They require no mortgage insurance
• B. They have lower down payments
• C. They are insured by the federal government
• D. They have faster processing times

Answer: (C)

The main idea is that FHA loans are insured by the federal government, which reduces the lenders’ risk. With government-backed insurance, if a borrower defaults, the insurer covers a substantial portion of the loss. That safety net makes lenders more comfortable approving loans to borrowers who might have lower credit scores or smaller down payments. The other points describe borrower benefits or process speed, but they don’t create the same risk protection for lenders as the government insurance does.