Douglas Baruch, a lawyer for Wells Fargo, told a federal judge in Manhattan that while the parties would not rule out a settlement, both sides were prepared to resume litigating after putting the case on hold since July.

“The parties are no longer as optimistic as they once were,” he said.

Two weeks ago, the San Francisco-based bank disclosed in a regulatory filing that it was in discussions to resolve the lawsuit, filed in 2012, which seeks hundreds of millions of dollars in damages.

The U.S. Justice Department says Wells Fargo failed to report more than 6,000 loans that did not meet requirements for insurance under the Federal Housing Administration and failed to properly review…