According to a report from Politico, the Federal Trade Commission (FTC) is preparing to mount a challenge to the planned merger between lending industry titans Intercontinental Exchange (ICE) and Black Knight.
ICE and Black Knight first publicized the transaction in May 2022, when it was announced that ICE entered into a definitive agreement to acquire Black Knight in a cash and stock deal with a market value of $13.1 billion. A statement from the two companies projected then that the transaction would close in the first half of 2023, pending the requisite regulatory and stockholder approvals.
Thus far, the deal had shown no real signs of slowing down — until this week. Citing “three people with direct knowledge of the matter,” Politico said that a case is expected to be filed “some time in March.”
ICE’s reach as a company extends far beyond the mortgage realm, as it operates cash, futures and commodity exchanges worldwide, including the New York Stock Exchange. ICE made its original foray into mortgages in 2016 with the acquisition of a majority stake in Merscorp Holdings, the owner of Mortgage Electronic Registrations Systems Inc., an electronic national registry that tracks the servicing rights and ownership of mortgages. At the time of the purchase, ICE stated that its vast involvement in operating exchanges was a natural fit when it came to “contributing to the evolution of mortgage market infrastructure.”
ICE has since been assertive in acquiring stakes in the data side of the mortgage market, including its acquisition of mortgage tech giant Ellie Mae in August 2020. ICE’s acquisition of Black Knight was painted by ICE CEO Jeff Sprecher as yet another logical step, citing the company’s track record in “analog and opaque financial transactions more digital and transparent” — potentially key for a mortgage industry that has historically and notoriously been sluggish to adopt tech innovation.
But Politico’s report of a looming FTC roadblock to acquisition of Black Knight represents the largest salvo to date among mortgage industry concerns of ICE’s growing scope. Put simply, per Politico, the FTC believes that the deal would give ICE too much power in the multitrillion-dollar mortgage market. The consolidation of power could result in restricted competition within the mortgage data space, resulting in higher expenses for lenders (especially smaller ones) that could translate into higher costs for homebuyers.
Scott Olson, executive director of the Community Home Lenders of America, outlined as much in a Scotsman Guide op-ed in August 2022.
“ICE claims the merger with Black Knight will streamline their operations, making it possible to reduce costs. Great, but there is no mechanism to ensure that these savings will be passed along to mortgage lenders,” Olson said. “Instead, lender vulnerability to a loss of these critical services at renewal time means that they will probably have no option except to accept a significant price increase, if one is imposed at renewal time. And with their market dominance, ICE/Black Knight will probably be in a position to do so.”
Rep. Maxine Waters, D-Calif., echoed these concerns in a December letter calling for the FTC to review the ICE-Black Knight deal.
“Combined, this merger would make ICE the largest mortgage services company in the housing ecosystem based on market capitalization,” Waters wrote. “If this deal closed as proposed, the resulting conglomerate could exert significant market power over loan pricing for consumers, access to and sale of consumer data, and mortgage software pricing.
“A combined ICE and Black Knight could harm small lenders that rely on vendors for their technology needs by significantly disincentivizing responsible innovation and inhibiting vendor competition given the dominant market share of ICE.”
The FTC now looks ready to make its move, if Politico’s report proves prescient. Per Politico’s sources, no decision is final until a case has been filed. In February, it was reported that Black Knight was looking for buyers of its Empower loan origination software suite to assuage antitrust concerns that would hinder the sale to ICE, but it appears that may not be enough to keep an FTC challenge from being formalized.