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HomeReal StateAntitrust Regulators Move To Block ICE's $11.7B Black Knight Acquisition | Inman

Antitrust Regulators Move To Block ICE’s $11.7B Black Knight Acquisition | Inman

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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, saying the deal would put an end to intense competition between the two companies and drive up costs for lenders and homebuyers.

Intercontinental Exchange (ICE) owns the most popular loan origination system (LOS) used by U.S. mortgage lenders, Encompass. Black Knight owns the second-largest loan origination system, Empower.

Antitrust regulators have been scrutinizing the deal since at least last June when the Federal Trade Commission (FTC) sent ICE and Black Knight a “second request” for additional information and documents.

ICE and Black Knight had hoped to appease the FTC, announcing Tuesday that they’d reached an agreement to sell Empower to Constellation Web Solutions. The FTC shattered those hopes Thursday by launching an administrative proceeding to block the merger.

“By eliminating Black Knight as a competitor, the deal would free ICE to more aggressively raise prices that it charges mortgage lenders for origination services,” the FTC said in announcing a 4-0 vote to initiate a proceeding before an administrative law judge.

In a statement, ICE said it “strongly disagrees with, and will vigorously oppose” the FTC’s challenge.

“ICE is fully confident in our position and looks forward to presenting it in court,” the company said. “While that litigation plays out, the company is continuing its work toward closing the acquisition, which it expects to complete in the third or fourth quarter of this year.”

In its complaint, the FTC said its review of internal ICE documents revealed the use of several “levers” to grow revenue, including price increases to Encompass customers.

In addition to loan origination systems, mortgage lenders rely on many providers of “ancillary services,” such as document vendors, borrower point-of-sale and product and pricing engines (PPEs) that generate loan pricing based on borrower criteria.

The FTC dismissed Black Knight’s proposal to sell Empower to Constellation Web Solutions as a remedy, noting that Constellation would serve as a reseller of ancillary services to be provided by ICE, including Black Knight’s Optimal Blue mortgage product and pricing engine (PPE).

“Black Knight’s Optimal Blue is the clear industry leader, serving lenders that originate as much as 40 percent of the nation’s residential mortgages each year,” FTC attorneys said in their complaint. “Second to Optimal Blue is its close competitor, ICE’s Encompass Product and Pricing Service PPE (“EPPS”), currently available only to lenders who use the Encompass LOS.”

Constellation Web Solutions is a subsidiary of Constellation Software Inc., a publicly traded company based in Toronto with a market capitalization of $34.9 billion ($48 billion Canadian) and the parent company of U.S.-based Constellation Mortgage Solutions (CMS).

But because Black Knight would not be transferring a standalone business, the FTC alleges Constellation Web Solutions would lack the “ability, resources and incentive to replace the intensity of the competition between ICE and Black Knight.”

‘Ongoing trend’ toward consolidation

The FTC said it’s also worried that if the deal were to go through, it “may accelerate an ongoing trend toward vertical integration and consolidation” in mortgage technology.

ICE added Encompass to its stable of products through its $11.4 billion acquisition of Ellie Mae in 2020. That deal was preceded by ICE’s 2016 acquisitions of Mortgage Electronic Registration Systems Inc. (MERS), a database tracking mortgage loan ownership, and Simplifile, an e-recording and closing software firm ICE acquired in 2019.

In addition to Empower, Black Knight’s mortgage technology products include mortgage servicing platform Compass Analytics, which Black Knight bought in 2019, and Optimal Blue, which Black Knight acquired in 2020.

“Both ICE and Black Knight are historically acquisitive companies,” the FTC said. “ICE plans to continue an industry trend toward consolidation and vertical integration by acquiring Black Knight’s various ancillary services to round out ICE’s own offerings. As ICE accumulates additional ancillary services, its incentive to disadvantage third-party vendors will increase as its need to do business with third parties who currently provide those services to users of Encompass and Empower will diminish.”

ICE and Black Knight have maintained that the merger would allow them to create a “life of loan” mortgage platform with cost-saving efficiencies that would benefit consumers.

‘Life of loan’ mortgage platform


ICE envisions building a “life of loan” mortgage platform by integrating technology built by Black Knight with its own solutions. | Source: May 5, 2022 ICE investor presentation

In a 2022 investor presentation, ICE claimed benefits to homebuyers would include:

  • Digitization and automation of loan originations, lowering costs for all parties
  • Surfacing data to help existing homeowners understand new money-saving loan programs
  • Eliminating erroneous fees and lowering costs for consumers by linking mortgage origination and servicing systems
  • Connecting lenders with potential buyers in historically underserved markets by integrating origination and servicing data
  • Reduced minority bias in home valuations

Tim Bowler, president of ICE Mortgage Technology, sounded a similar note Thursday.

Tim Bowler

“We are disappointed that the FTC has filed litigation to prevent ICE from closing our acquisition of Black Knight,” Bowler said in a statement. “The proposed acquisition can bring to life a true end-to-end solution for the mortgage industry, benefitting aspiring and current homeowners across the United States.”

But the FTC said it expects the merger would disproportionately harm lower-income and first-time homebuyers if lenders end up paying higher costs for loan origination systems and ancillary services like mortgage products and pricing engines.

Those costs “likely will be passed on to consumers in the form of higher mortgage origination costs,” the FTC alleged.

“Given that origination costs remain relatively constant regardless of the amount of a mortgage, an increase in origination costs will result in a proportionally larger price increase for a homebuyer seeking a $200,000 mortgage than for a homebuyer that can afford a $1,000,000 mortgage,” FTC attorneys said in their complaint.

“Similarly, increased origination costs will affect homebuyers who must finance their home purchases to a greater degree than wealthier homebuyers who may pay cash. Put simply, higher origination costs will disproportionately harm lower-income and first-time homebuyers.”

Attorneys for ICE and Black Knight have 14 days to answer the FTC’s complaint, whose allegations will be tried in a formal hearing before an administrative law judge.

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Email Matt Carter





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