Government Insured Sub-Prime

FHA is definitely not my market but I thought this article from the Mortgage Professor was interesting.

FHA requires a down payment of only 3%, and has no minimum credit score.

But there is a small group of lenders who will accept any score…

The profit margins for those originating sub-prime FHA mortgages are 3 or 4 times as large as those on other mortgages…

The FHA sub-prime market results in higher losses to FHA, and allows the most vulnerable borrowers to be overcharged. These borrowers should pay more, but the payments should go to FHA to defray the higher loss rates, not to loan originators. The appropriate remedy is to scale mortgage insurance premiums to credit score.

[Emphasis mine]