Collections settlement before applying for FHA loan

[Chris Petersen]

I've made some poor financial decisions 3 years ago and allowed my credit cards to go into collections. I have 3 credit cards that went into collections and the total amount is $22K. I am now getting all my finances in order and feel very stable. My current annual income is $72K, with credit score of 550 (it was 580, but dropped 30 points since I've just paid off my financed car in a lump sum, which closed the account completely lowering my overall longest opened account that was paid on time for the past 3 years). I am interested in purchasing a home, however I will have to resolve these collections. I have a few questions:

1) What are the chances of me being approved for an FHA loan if I settled all of my collections?

2) What is the best way to settle, as I've been offered by a third party company that is willing to help settle for 15% fee on the total amount they help save. So if they settle my total loan at a $10k savings, I'll pay them $1500 service fee.

3) If you were in my position what would you do?

I have been a lurker and love the knowledge this community offers, your inputs are much appreciated!