The planned merger between Intercontinental Exchange Inc. and Black Knight may be subject to scrutiny from the Department of Justice and the Consumer Financial Protection Bureau over antitrust concerns raised by the Community Home Lenders Association.
In its Wednesday letter to the DOJ, CHLA claimed the small and midsize independent mortgage banks it represents would be “particularly vulnerable” to market concentration — such as the large conglomerate resulting from an ICE/ Black Knight merger — in mortgage services. Unlike large lenders, which often have their own proprietary systems, it’s often not financially feasible for smaller firms to develop their own software.
A dominant services provider would diminish smaller firms’ ability to negotiate the rates and terms of the services they provide, CHLA wrote. Less competition also could reduce pressure to innovate and develop new products and services, and one firm holding significant amounts of consumer data raises “myriad” concerns, the letter reads.
Intercontinental Exchange and Black Knight did not respond to requests for comment.
Mortgage underwriting has transitioned during the past few decades from a largely manual process — computations which relied on data points such as rental payments — to one that relies on software, credit scoring and related services. Servicers and lenders able to deploy efficient and sophisticated servicing, origination, and even regulatory compliance systems, are more competitive.
The gains in efficiency and scale are offset by inherent vulnerabilities of relying on third-party data and systems, and their limitations. One prominent example is the inability of the credit scoring models, now ubiquitous in mortgage underwriting and credit decisions, to score large parts of the population, especially those with little credit history.
One limitation of mortgage services software is whether they are compatible with other systems. The CHLA raised concerns that ICE/ Black Knight software would not be compatible with that of their competitors, limiting lenders’ ability to switch out software and services components.
Those services and systems are also used for regulatory, pricing, training and other critical functions — not just loan originating and servicing, the CHLA wrote. Any gap in those necessary functions could pose a serious problem, giving the provider of those services serious leverage to charge “significant and unwarranted price increases upon renewal,” according to CHLA.
“A smaller lender could have no practical option other than to accept the significant and unwarranted cost increases,” CHLA wrote, which would be passed on to consumers. The CHLA also said independent mortgage banks now originate more than 60% of all mortgage loans and more than 90% of FHA loans, which disproportionately serves minority borrowers.
Intercontinental Exchange, the software and data parent company of ICE Mortgage Technology, will acquire Black Knight. The companies announced the $13.1 billion mega-deal in May.
In addition to the DOJ, the CHLA sent its letter to the Consumer Financial Protection Bureau, the Federal Trade Commission, the Federal Housing Administration and the Federal Housing Finance Agency. The CHLA may find a sympathetic ear in Rohit Chopra, the director of the CFPB.
Chopra has in the past raised antitrust concerns about large technology companies, through dissenting opinions during his time at the FTC.
In 2019, speaking after the House Judiciary Committee requested documents from Apple, Amazon, Google and the company formerly known as Facebook, Chopra told CNBC: “We actually have to take a hard look at whether these behemoths are killing off innovation and competition.”