ICE’s mortgage business outperforms in Q3 despite industry headwinds

ICE's improved adjusted operating income of $131M in Q3 was driven by strong sales in its Encompass loan origination, MSP solutions systems

Intercontinental Exchange (ICE) Mortgage Technology reported an adjusted operating income of $131 million in the third quarter of 2023, up from Q3 2022’s $126 million — despite the headwinds the mortgage industry is facing.

ICE attributed “an analog to digital conversion occurring in the U.S. residential mortgage industry” for its mortgage business outperforming in Q3 even as the industry experienced a nearly 20% decline in origination volumes. 

Strong sales in its Encompass loan origination system, as well as its mortgage servicing platform (MSP) solutions business, drove an improved adjusted operating income for the mortgage technology division at ICE.

In Q3, about 60% of existing Encompass customers that were due for a renewal increased their base subscriptions. ICE expects to have its second-best year for MSP sales since 2017.

“Through October, we have already surpassed our prior full year record for new Encompass sales, which was set in 2020. In our servicing solutions business, the closing of the Black Knight transaction has unlocked the pipeline with four new MSP customers signed in October alone,” Warren Gardiner, chief financial officer of ICE, told analysts in its Q3 earnings call. 

Since ICE completed its acquisition of Black Knight in September, M&T Bank has become a new customer of Encompass, replacing its existing loan origination platform and adding ICE’s data and document automation platform.

ICE also cross-sold MSP and several data and analytics products to Fifth Third Bank, an existing customer of ICE, Ben Jackson, president of ICE and chair of ICE Mortgage Technology, noted.

ICE said it doesn’t anticipate any negative impact to its Encompass business from the recent commission lawsuits if homebuyers use fewer real estate agents which, in turn, could result in loan officers losing their largest referral pipeline.

“We don’t have a business of selling leads to real estate brokers and the like. For us, our core businesses are all in and around the origination transaction itself,” Jackson told analysts. 

“If anything, all of the data and analytics offerings that we have that underpin this overall platform, front to back both between ICE Mortgage Technology assets that we’ve had historically, as well as the data assets that have come with the Black Knight business, all position us very well in that space going forward,” Jackson added. 

The mortgage technology division at ICE posted $330 million in total revenue in the third quarter, up about 19.6% from Q3 2022’s $276 million. 

Adjusted operating expenses posted $199 million in Q3 2023, up about 32.7% from $150 million in the same period a year ago.

Looking ahead to Q4 2023, ICE expects near-term cyclical headwinds in the mortgage industry to persist. 

“Coupled with typical seasonal pressures on origination volumes in the first and fourth quarters of each year, we expect the total fourth quarter ICE Mortgage Technology (IMT) revenues will be in the range of $490 million to $500 million, bringing full year pro forma IMT revenues to approximately $2.06 billion,” Gardiner said. 

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