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Washington — In a loss for the U.S. Department of Justice, a federal judge Friday temporarily delayed the government’s case against Quicken Loans Inc. that alleges the Detroit-based mortgage company improperly approved federally backed home loans costing the government millions of dollars.

At a hearing here, U.S. District Judge Reggie B. Walton said it would be “prudent” to wait for a ruling by a federal court in Detroit, where Quicken Loans has sued the government seeking to quash its three-year investigation into the company’s lending practices.

Both courts are weighing requests to dismiss the cases or transfer venue. The Justice Department wants the matters heard in Washington, while Quicken Loans prefers Detroit.

Walton did indicate he is considering moving the government’s case to Michigan.

“Aren’t all the documents and witnesses there, and the loans granted from a location in that district?” he said. “If that’s true, I’d be inclined to transfer.”

Walton said he had consulted with U.S. District Judge Mark Goldsmith in Detroit Thursday night. He said Goldsmith plans to rule by mid-October on the Justice Department’s motion to dismiss or transfer to Washington Quicken Loans’ suit against the government.

How Goldsmith rules could affect the case in Washington, D.C., Walton said. Also, he doesn’t want to waste judicial resources having two cases with “similar issues” proceeding simultaneously in different districts, Walton added. He set the next hearing in Washington for Nov. 6.

The Justice Department sued Quicken Loans in April, alleging the lender violated mortgage underwriting rules and ignored “red flags” on questionable home loans.

Quicken Loans has denied the charges and accused the federal agencies of bullying. It says the

The Justice Department opposes the Detroit transfer, stressing that the Federal Housing Administration and the U.S. Treasury are in Washington, and officials at those agencies would be called as witnesses. The FHA backed the loans at issue, and the Treasury paid out claims on the FHA-insured loans.

Shortly before the Justice Department filed suit in April, Quicken Loans filed its own complaint in Detroit against the government, seeking to quash the investigation, which included the subpoena of 85,000 documents, including 55,000 emails.

The Justice Department has called that Quicken grievance “legally flawed” and a “procedural end run” around prosecutors’ discretion.

Representing the government, Assistant U.S. Attorney Brian Hudak told Walton that delaying the case would have a “chilling” effect and encourage defendants under investigation around the country to file pre-emptive challenges to the government's anticipated case.

“It would set an alarming precedent,” Hudak said.

Quicken Loans lawyer Jeffrey B. Morganroth said the government’s claims arose in Michigan, where the bulk of relevant records and witnesses work and where the decision-making on loans occurred.

“We can’t figure out why the action was filed here, except for forum shopping,” Morganroth said.

Quicken, the nation’s largest FHA lender, has noted that the $40 billion in FHA mortgages originating with Quicken are projected to result in billions in government revenue from insurance premiums.

The Justice Department's complaint alleges that the mortgage giant knowingly submitted claims for hundreds of improperly underwritten FHA-insured loans from September 2007 through December 2011.

The loans involved inflated appraisals, poor credit risks and borrowers with insufficient incomes. Quicken Loans also failed its obligation to disclose problems with the loans to the FHA, the government says.

mburke@detroitnews.com

(202) 662-8736

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