Final answer:
The FHA functions similarly to an insurance company, providing insurance for mortgages made by private lenders which protects against the risk of borrower default. The correct option is B. An insurance company
Step-by-step explanation:
The Federal Housing Administration (FHA) functions similarly to an insurance company. It does not make loans or function as an investment firm, bank, or mortgage company itself; instead, it ensures mortgages made by private lenders against the risk of default.
This insurance helps borrowers get better loan terms than they might without the FHA backing, and it protects lenders against losses in case of borrower default.
Financial institutions like banks purchase insurance from entities like the FDIC to mitigate the risk of bank failure, which is a similar concept to how the FHA operates by insuring mortgages. The correct option is B. An insurance company