“…However, some households, fearing possible rejection for conventional loans, apply for FHA insurance, although their credit risk is below the conventional standard (Φ Φ ), whereas other households, less concerned with possible rejection than with insurance cost, apply for conventional loans with Φ Φ . Pennington-Cross and Nichols [15] demonstrate that although the cumulative distribution functions (CDF) of credit scores reported by the Fair, Isaac and Company (FICO) for FHA and conventional borrowers have considerable overlap, the 5 For borrowers with high loan-to-value mortgages (greater than 95%), FHA insurance premiums are lower than PMI premiums. For borrowers at the 95% LTV cutoff, the relative cost advantage or disadvantage of FHA over PMI depends upon a number of factors, including whether the applicant qualifies for the first-time home buyer credit or the central city discount credit rationing probability of applying to FHA decreases monotonically with increasing FICO scores.…”