This is a type of non-conforming loan. It does not conform to the requirements of Fannie Mae and Freddie Mac. There are different kinds of papers like 'A', 'B', 'C' and 'D' loans. B/C loans in particular have been formulated for borrowers who have recently declared bankruptcy or have had late payments on their credit reports.

It is a temporary support system. The interest rates are considerably low, to help them achieve the 'A' status and revert to normalcy.

You can read more about bad credit mortgages at Accessible Home Loans. Including how a bad credit mortgage works, the benefits and drawbacks, as well as who qualifies.