Regional banks, in fact, made many of the most problematic loans to real estate developers.
The problem is that many of the most problematic loans do not fall under the Fannie-Freddie umbrella.
It could also lead to fresh losses on $1 trillion of problematic loans the bank owns or services — or both.
Credit Suisse analyst Jonathan Pierce estimates that Barclays has up to £80bn of problematic loans that could be submitted to the insurance programme.
Last week, Moody's reported that the Chinese banking system was concealing one-half-trillion dollars in problematic loans, mainly for municipal vanity projects.
Moreover, when Bear Stearns identified problematic loans that it had agreed to purchase from a lender, it was required to make the originator buy them back.
Its demands that the government offer it protection against further declines in the value of certain already problematic loans after the sale also met resistance.
In most cases, the lenders are fighting the allegations and Lehman's demand that they buy back defaulted or otherwise problematic loans.
The problematic loans were not eligible for the government insurance, according to the lawsuit, and when they soured, the F.H.A. was obligated to cover the losses.
The government also contended that Mr. Mozilo and Mr. Sambol improperly profited on inside information about the company's problematic loans when they sold Countrywide shares.
These investors maintain, citing internal documents and e-mails, that those putting together mortgage securities knew that they contained problematic loans that would likely fail.
