Final answer:
The correct answer is option A) Provide mortgage insurance for loans made by approved lenders.
Step-by-step explanation:
The primary role of the Federal Housing Authority (FHA) in the mortgage lending market is to provide mortgage insurance for loans made by approved lenders. This insurance helps to lower the risk for lenders, making it more feasible for them to offer loans to a broader segment of the population, including those who might not otherwise qualify for homeownership. The FHA's involvement in the mortgage market has been significant in increasing overall homeownership rates and shaping residential demographics in the United States.
Historically, the FHA has also been involved in setting standards for housing and influencing the types of loans and properties that would qualify for insurance. However, some of the FHA's policies, particularly during the mid-20th century, have been critiqued for practices such as redlining, which contributed to racial segregation and the exclusion of minority populations from certain neighborhoods.