As his competitors imploded one by one, Jim Hodge, the folksy founder of Allied Home Mortgage Capital, touted his sprawling Houston firm as a survivor.

Not only was Allied still standing, Hodge told employees in a company newsletter in December, it was thriving. "The good news," Hodge wrote, "is that even though we are all having to work harder, most branches are making lots of money."

But an examination of Hodge's mortgage company by ProPublica found that its prosperity has come at a price for dozens of customers who claim Allied brokers have put their homes at risk, lied to them or improperly siphoned money from their deals.

The firm has left behind a trail of alleged misconduct and piecemeal government sanctions spanning at least 18 states and seven years. Yet Allied chugs along unimpeded, aided by access to the government-backed Federal Housing Administration loan program.

Over the past year, the FBI and federal prosecutors have made mortgage fraud a priority, filing criminal charges across the country. Regulators, such as the U.S. Department of Housing and Urban Development, also say they are getting tough. But Allied's history shows how even repeat offenders can fall through gaps in the fragmented safety net meant to protect mortgage borrowers.

Consider:

• Allied has the highest serious delinquency rate among the top 20 FHA loan originators from June 2008 through May.
• Nine states have sanctioned the firm in the last 18 months for such violations as using unlicensed brokers and misleading a borrower.
• Federal agencies have cited or settled with Allied or an affiliate at least six times since 2003 for overcharging clients, underpaying workers or other offenses.
• At least five lenders have sued, claiming Allied tricked them into funding loans for unqualified buyers by falsifying documents and submitting grossly inflated appraisals, among other allegations.

"Everything is just a nightmare for me," said Cheryl Stewart, who is suing Allied alleging that its Hammond, La., office misrepresented her income to qualify her for a loan, then deposited money from her closing into the branch manager's bank account. Stewart said she is on the brink of losing her home as a result. Allied has successfully argued that the case should be moved out of state court and into arbitration.

Despite these repeated complaints, no single agency is investigating the sweep of the company's actions and whether they represent a pattern or, as Hodge maintains, are to be expected for a company of Allied's size. It bills itself as the nation's biggest privately held mortgage broker-banker with some 200 branches.

William Black, an associate professor of economics and law at the University of Missouri-Kansas City, said Allied's record exemplifies the failings of a regulatory system that has teeth but seldom bites.

"It's a wonderful example of the overall crisis," said Black, who has testified before Congress about financial fraud. "What would it take before somebody would take serious action?"

Federal housing officials would not discuss Allied's performance or their own negative audits of the firm. But after a recent review, the FHA has recommended that the Mortgagee Review Board take action against Allied. The board can fine companies or revoke their access to the FHA market, which has caused firms to close.

Separately, the Secret Service, which conducts criminal investigations for the Treasury Department and Federal Deposit Insurance Corp., confirmed that it is looking into allegations of fraud and wrongdoing at Allied's now-shuttered branch in Hammond.

Although Allied is dwarfed by Wells Fargo, Bank of America, Quicken Loans and JPMorgan Chase, the nation's largest mortgage firms, it remains a big player in FHA-insured loans.

In the last two years, Allied Home Mortgage Capital originated more FHA mortgages than all but 15 of the more than 10,000 firms that handled such loans. Since 2005, it has processed nearly 40,000 FHA loans worth nearly $5.85 billion, according to the FHA. Those loans now account for at least 70% of Allied's business, Hodge said.

Allied differs from most other FHA players in that it is both a broker and a lender. It has an affiliated company with a nearly identical name that has been the lender on about 30% of its FHA loans in the last two years.

Since the collapse of the subprime market, the volume of FHA-insured loans has boomed, rising from about 5% of all home loans in 2007 to 20% in 2009. When these loans fail, an insurance fund supported by FHA borrowers picks up the tab.

Both as a broker and a lender, Allied's rate of seriously delinquent loans is nearly 60% higher than the national average for the past two years. And the FHA paid out more than $500 million from 2005 to 2009 for claims on defaulted loans brokered by Allied, statistics show.

In an interview, Hodge said the delinquency rates reflect more on the lenders that funded the loans than on his brokers.

The $500 million in claims FHA paid out, he said, were covered in part by insurance premiums paid by Allied borrowers — who largely do not default. "They didn't have a complete loss of a half a billion," he said.

Hodge said the problems experienced at some of Allied's branches should not tarnish his firm's overall record. "If you look at the volume that we did or do," he said, "it's not significant."

Broken trust

Sal and Ashley DePaula said they had more reason than most people to trust their broker: The manager of Allied's Hammond branch was a tenant in one of their rental houses.

Over the course of 2006 and 2007, Allied's staff helped them sell that property to an acquaintance of the manager and refinance several others.

It wasn't until months later, the DePaulas allege, that they realized they'd become pawns in a scam.

The buyer of the property the couple sold for $93,000, had actually paid $47,000 more than that, according to a lawsuit in state court by the couple and documents they provided. The cash ended up in the account of Shane Smith, the branch manager, a wire-transfer record shows.

Then, after a tornado hit one of the DePaulas' refinanced rental homes in 2008, they learned they'd never been signed up for the insurance Allied said it had arranged — even though they'd paid for it every month. The couple said they expect to spend more than $36,000 on repairs.

"Had somebody robbed me and stole $50 out of my purse, they would be in jail," said Ashley DePaula, who said she is "bitter" that no one has been punished.

Last year, the couple learned that Allied had put another borrower's name on Sal DePaula's retirement account statement and submitted it in a loan qualification packet.

That other borrower, Louisiana state criminal investigator Terry Apple, said he only realized he was part of an alleged scam when ProPublica showed him a copy of the statement.

"I'm now finding out that I'm just a small part of a very large puzzle," Apple said.

At least four lawsuits, including one by the DePaulas, have been filed against Allied over the conduct of its Hammond branch. Other borrowers, some of whom are mentioned in legal filings, allege they, too, were defrauded but can't afford to sue.

"You know how your body can be quivering?" said Franklin Morgan, 62, a disabled Vietnam veteran who faces losing his home. "That's what my body's been doing every day."

In towering stacks of legal documents, attorneys allege that the Hammond office deceived their clients from 2005 through 2007 by misrepresenting loan terms, falsifying records, failing to pay off prior mortgages and diverting hundreds of thousands of dollars. A title lawyer who worked closely with the Allied branch also stands accused — and has been sued by Allied.

The alleged victims include friends and relatives of Allied staff and the birth mother of the assistant manager's adopted daughter. That assistant manager's past — including an arrest warrant for allegedly stealing $24,000 from a previous employer — has come to light.

The lawsuits are proceeding, but Ashley DePaula says Allied has offered a small settlement that has not been finalized.

In an interview, Hodge conceded that "serious fraud" had taken place at the branch, which closed in 2008. He also acknowledged personally hiring branch manager Smith even though Smith previously had lost a home to foreclosure and declared personal bankruptcy. Smith and his attorney could not be reached for comment.

Hodge said the Allied corporate office does not appear to be a target of any criminal probe.

"I don't know all the details," he said. "It's a pretty bizarre situation."

Customers' stories

Around the country, other Allied borrowers tell similar tales.

In Charleston, W.Va., businessman Pete Pauley sued Allied in state court alleging that a Weirton, W.Va., broker misled him into signing for a low-interest loan in 2004 whose rate began rapidly rising after one month.

As part of the loan approval process, the branch submitted a letter from a local accountant verifying Pauley's ownership of his company. That accountant later testified he didn't know Pauley or write the letter.

Pauley, who runs an oil and gas company, said the experience was humiliating. He and his wife, Mary Ellen, a nurse, learned of other complaints.

Four other couples alleged similar betrayals by another Weirton loan officer, the sister of Pauley's broker.

Allied settled for $240,000, Pauley said. But Hodge said Allied did so only after the judge strongly encouraged it.

"We ended up buying that guy a house," he said.

Allied also settled with the other four couples. In addition, it agreed to pay $12,000 in education and restitution costs after the West Virginia attorney general found it had misled borrowers about their loans.

Lenders, too, have felt aggrieved. AmericaHomeKey sold loans brokered by Allied to a secondary investor. After four borrowers failed to make even the first payments on their loans, the investor demanded the lender make good.

AmericaHomeKey then sued Allied in Harris County, Texas, alleging that it had misrepresented the self-employment status of three of the borrowers and failed to check out other basic facts.

"Clearly, these borrowers lacked the financial means and/or the intent to make the payments on these mortgage loans," the lawsuit said.

Allied disputes the allegations and will defend itself "with vigor," Hodge said.

In South Carolina, Charleston title attorney Elizabeth Stuckey Murphy testified in a deposition that she became so concerned about possible fraud at Allied's Goose Creek branch that she complained to the FHA and law enforcement agencies in 2005.

The branch manager, Murphy claimed in a letter to authorities, had padded closing statements with invoices for contracting work by her husband that was never performed — nearly $30,000 in one case alone.

In a deposition two years later, Murphy was asked about her complaint to the FHA hotline. "To date," she said, "I haven't received any response."

Frequent troubles

Every year since 2003, Allied has landed in trouble somewhere.

It's a streak that began with twin wallops from the U.S. Department of Housing and Urban Development totaling $420,000 in settlements — a significant sum for the agency. HUD oversees the FHA program, which insures mortgages for buyers who can't afford big down payments.

In all, regulators and attorneys general in at least 18 states have acted against the firm or its brokers. Most of the matters have been settled without any admission of wrongdoing by Allied.

Washington state banned a former broker in Allied's Spokane office after he was convicted of 10 felonies for stealing Allied clients' money and laundering it. Arizona denied a broker's license to a firm owned by Allied's Tucson branch manager because she had previously been convicted of embezzling from a bank.

State regulators say they must limit their actions to what happens within their borders. Federal officials say they don't generally look into state actions unless a mortgage company's conduct may also violate federal rules.

Although HUD and FHA have recently stepped up oversight of the mortgage industry, they have long had tools to police it.

Using data collected on every loan, housing officials can statistically track whether mortgage firms are putting borrowers into FHA loans they can't or don't pay on. According to this data, Allied for several years has had a serious delinquency rate well above the national average.

Over the last two years at one Houston branch, some borrowers mustered only a few payments or none at all. The serious delinquency rate within one year of closing was 12%, compared with 4.2% nationwide.

Gary Lacefield, a former HUD investigator, said the numbers are an obvious red flag about Allied that regulators should have acted upon. "I see no reason," he said, "why they shouldn't have been hammered."

ProPublica director of research Lisa Schwartz contributed to this story. USA TODAY editors assisted in preparing it for publication.