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Federal antitrust regulators have moved to block Intercontinental Exchange Inc.’s pending $11.7 billion acquisition of real estate software, data and analytics provider Black Knight. home buyer.
Intercontinental Exchange (ICE) owns the most popular Loan Origination System (LOS) used by US mortgage company Encompass. Black Knight owns Empower, the second largest loan origination system.
Antitrust regulators have been scrutinizing the deal since at least June last year, when the Federal Trade Commission (FTC) sent ICE and Black Knight a “second request” for additional information and documents.
ICE and Black Knight, hoping to appease the FTC, announced on Tuesday that they had reached an agreement to sell Empower. Constellation Web SolutionThe FTC dashed those hopes Thursday by initiating administrative proceedings to block the merger.
“By eliminating Black Knight as a competitor, the deal frees ICE to more aggressively raise the prices it charges mortgage lenders for its origination services,” the FTC said. . 4 to 0 vote announced Initiate proceedings before an administrative law judge.
In a statement, ICE said it “strongly and vigorously opposes” the FTC’s challenge.
“ICE has complete confidence in our position and looks forward to presenting it in court. the company said“While the litigation is ongoing, the company continues to work toward closing the acquisition, which is expected to be completed in the third or fourth quarter of this year.”
In its complaint, the FTC says a review of ICE’s internal documents revealed that it used several “tools” to increase revenue, including raising prices for Encompass customers.
In addition to the loan origination system, the mortgage lender provides a number of “ancillary services,” such as document vendors, the borrower’s point of sale, and a product and pricing engine (PPE) that generates loan pricing based on the borrower’s criteria. ” depends on the provider.
The FTC will sell Empower to Constellation Web Solutions in relief, noting that Constellation will act as a reseller of ancillary services provided by ICE, including Black Knight’s Optimal Blue mortgage product and pricing engine (PPE). I rejected the Black Knight’s proposal.
“Black Knight’s Optimal Blue is the clear industry leader, serving as many as 40% of the nation’s mortgage lenders each year,” FTC attorneys said in the complaint. “Next to Optimal Blue is its rival, ICE’s Encompass Product and Pricing Service PPE (“EPPS”), currently available only to lenders using Encompass LOS. “
Constellation Web Solutions is a subsidiary of Constellation Software Inc. Listed company Based in Toronto, it has a market capitalization of $34.9 billion ($48 billion in Canada) and is the parent company of US-based Constellation Mortgage Solutions (CMS).
However, since Black Knight will not transfer an independent business, the FTC claims that Constellation Web Solutions lacks “the ability, resources and incentives to replace the intense competition between ICE and Black Knight.” increase.
An “ongoing trend” towards consolidation
The FTC also said it was concerned that the deal, if closed, “could accelerate the ongoing trend toward vertical integration and consolidation” in mortgage technology.
ICE added Encompass to its stable of products with its $11.4 billion acquisition of Ellie Mae in 2020. The deal follows ICE’s 2016 acquisition of Mortgage Electronic Registration Systems Inc. (MERS), a database that tracks mortgage loan ownership, to acquire Simplifile. – Recording and closing software company ICE acquired in 2019.
In addition to Empower, Black Knight’s mortgage technology products include Compass Analytics, a mortgage services platform acquired by Black Knight in 2019, and Optimal Blue, acquired by Black Knight in 2020.
The FTC said, “Both ICE and Black Knight are historical acquisition companies. We plan to continue the industry trend towards consolidation, as ICE accumulates additional ancillary services, reducing the need to do business with the third parties who currently provide them to users of Encompass and Empower. , increasing incentives to penalize third-party vendors.”
ICE and Black Knight claim the merger will create a “life of loans” mortgage platform with cost-saving efficiencies that benefit consumers.
“Life of Loan” Mortgage Platform
ICE envisions building a “life of loan” mortgage platform by integrating the technology built by Black Knight with its own solutions. | | Source: 5 May 2022 ICE Presentation for investors
In its 2022 investor presentation, ICE claimed that home buyers would benefit from:
- Digitizing and automating loan origination to reduce costs for all parties
- View data to help existing homeowners understand new money-saving loan programs
- Eliminate false fees and reduce costs for consumers by linking mortgage origination and servicing systems
- Integrate origination and service data to connect lenders and potential buyers in historically underserved markets
- Reducing minority bias in housing valuations
Tim Bowler, president of ICE Mortgage Technology, made a similar statement on Thursday.
“We are disappointed that the FTC has filed a lawsuit to block ICE’s acquisition of Black Knight,” Bowler said in a statement. and can benefit aspiring and current homeowners across the United States.”
But the FTC said the merger would disproportionately hurt low-income and first-time homebuyers if lenders would pay higher costs for ancillary services such as loan origination systems, mortgage products and pricing engines. He said he expects
These costs “are likely to be passed on to consumers in the form of higher mortgage origination costs,” the FTC argues.
“Given that origination costs have remained relatively constant regardless of the mortgage amount, the increase in origination costs is more than $200,000 for homebuyers who can afford a $1,000,000 mortgage. of homebuyers seeking mortgages will grow proportionately with price increases,” FTC attorneys said. Said in their complaint.
“Similarly, higher origination costs will have a greater impact on homebuyers who must finance their home purchases than on wealthier homebuyers who may pay cash. For example, higher origination costs disproportionately hurt low-income and first-time homebuyers.”
ICE and Black Knight attorneys have been given 14 days to answer the FTC’s complaint, and the complaint will be heard before a formal hearing by an administrative law judge.
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Email Matt Carter