In May, we announced our intention to acquire Black Knight. Since the announcement, we have heard from a number of lenders and partners about their excitement over our ability to accelerate the digital journey of our industry, our ability to invest in the modernization of the MSP servicing platform, and the open technology approach we bring to the deal.
We have also received questions from across the industry about the news as well as requests for details on the value that would be created for lenders and consumers through this acquisition. The following are a few of the more frequently asked questions, along with details regarding our intentions.
What do you believe will be the biggest impact for the industry with the acquisition of Black Knight?
In terms of the biggest impacts that this acquisition will have on the industry, I would highlight a few areas. First, it will be the openness and choice that lenders will have, as we at ICE have consistently demonstrated our commitment over the past 20 years to access and transparency in the mortgage industry, which we plan to extend to the Black Knight business.
We are investing in the modernization of MSP, in order to make it easier for lenders and servicers to access their data, interact with APIs and better enable partners to integrate with the Black Knight technology. In addition, we will drive greater integration across all the solutions, to improve the lender’s experience and eliminate unnecessary friction.
Also, we are accelerating our delivery of automation with a focus on cost reduction for the lender, which we expect will ultimately lower the cost of a mortgage for the consumer. We see big opportunities to reduce the cost of origination and the cost of servicing by leveraging increased automation throughout the life of the loan.
It is also important to remember that Black Knight was being approached by a number of entities to acquire them, including private equity firms, as indicated in recent public filings. If ICE was not acquiring Black Knight, they would have been acquired by someone else, who may not be fully committed to serving lenders long-term, or to making investments that enable greater access to data and open networks, but instead focus on a series of immediate changes with a short-term perspective.
ICE, on the other hand, has extensive experience in the mortgage industry, we have publicly stated our intention to invest significantly in a number of the Black Knight solutions, including MSP and Empower, and we are committed for the long-term in serving this industry and lenders specifically.
What was the motivation for ICE to want to do this deal?
Every year we are asked by our clients if we will provide servicing technology, because many lenders experience the inefficiencies when trying to onboard loans from a loan origination system into a servicing system. These lenders are having to manually key in data, they experience the adverse impact to homebuyers when interim payments are incorrectly applied, or find challenges when proof of homeowners insurance isn’t properly carried over into the servicing system, as well as several other points of friction.
Lenders also appreciate how we operate our solutions as open platforms and open networks and are anxious to have that same experience with their servicing system. This deal gives us the opportunity to address all these lender requests and make their experience significantly better.
In addition, we have heard directly from lenders about the desire to create a life-long customer engagement experience. For many lenders, after the loan is funded, they lose connection to those homebuyers. Lenders see opportunities to proactively engage consumers, throughout the entire lifecycle of the mortgage, to help these households improve their cash flow through refinances that target elimination of risk adjustments that may have been made at the time of origination.
Also, as we integrate our underwriting automation capabilities and our consumer engagement tools with both the servicing technology and the MLS solutions offered by Black Knight, we can enable lenders to provide households with the unique experience of being able to conduct searches for their next home based on those that they are fully qualified to buy.
There are so many different numbers when it comes to “market share” when industry participants are discussing this deal. What are the real numbers of the deal related to market share for ICE?
This acquisition is not about market share, it is about solving real problems in the industry related to accelerating the availability of automation, better integrations, improving the homebuyer’s experience and providing greater access to data while lowering lender costs by taking advantage of technology to eliminate manual processes.
Just as important to note is that all mortgage technology companies face robust competition in the marketplace, across all products. ICE faces numerous competitive threats from several well-established incumbent firms and newly established and well-backed entrants, who can and do take accounts away from both ICE and Black Knight.
The combination of ICE and Black Knight changes nothing. In fact, using consensus estimates of 6,500 total lenders in the U.S., Black Knight provides LOS services to fewer than 2% of those lenders. This competition means we must continue to innovate and deliver value to our customers, all at a competitive price point.
This is why we provide our customers with the option of selecting multi-year agreements, with built-in price protections. Most of our customers select four or five year terms, meaning that pricing cannot be arbitrarily changed for the duration of the contract, which is why so many of our lenders opt for longer terms. I believe that Black Knight contracts are similarly structured.
The bottom line is that our lenders know that they have multiple options and that ICE has to fight to keep its customers every day, which means our competitive focus and our incentive to innovate in the mortgage technology space are here to stay. However, for those who don’t work and live in the competitive mortgage space every day, we know that we need to help them understand all the competitive dynamics that exist, not only today, but also all of those on the horizon, from new entrants.
We look forward to working closely with regulators, and other interested parties, to help them fully understand this market and all the choice that lenders maintain.
With so much uncertainty in the industry, why do this acquisition now?
I have been in this industry for over 25 years, and other than the difficulties that we all experienced between 2007 through 2009, I would say that it feels that right now we are entering a period of greater uncertainty than in recent memory. Lenders and service providers are laying off staff, while preparing for an environment of continued increases in interest rates and lower housing supply.
But at ICE, with this acquisition, we are investing significantly in the industry, because we believe that homeownership should be possible for every U.S. household. We take a long-term view of the markets that we serve, and we understand that modernization requires investment, expertise and enabling clients and partners to participate in the journey.
Unlike a financial acquirer, who may be more focused on cutting Black Knight costs and maximizing the prices they charge to their customers, we are acquiring Black Knight with the intention of investing over $200 million into modernization of MSP and Empower, creating greater access to data, providing more transparency, and by opening the platforms more broadly by delivering APIs to accelerate innovation through enabling partners and lenders to have a greater role in delivering automation.
We are doing all of this by leveraging our significant expertise in making data available to market participants and modernizing markets around the world, as we have done for the New York Stock Exchange and other exchanges that we operate across the globe.
Do you feel this deal will hurt competition or spur innovation?
We have stated publicly that we intend to continue to offer all current Black Knight products, so there will continue to be the same choice that is available to lenders today. When it comes to innovation, we don’t believe that full automation of the industry can be done by any one single company. That is why we have embraced the ability to help new entrants come into the market and to be able to help distribute their innovations to our clients.
ICE is usually the first company that most start-ups approach to create awareness of their offerings and get help distributing their products. In the last 12 months alone, we have integrated and introduced 67 new partner solutions to our clients, with many of those coming from new start-ups. We do not have any exclusive relationships with these companies, as they partner with many LOS companies.
We also invite all industry providers to participate in our user conference and show their solutions directly to our customers. ICE operates open networks, and we provide access to our APIs, so both lenders and partners can foster and introduce innovation. We intend to extend this approach to all the Black Knight solutions as well, which will open even more access to MSP, Empower, Optimal Blue and all the other current offerings.
New innovation actually comes from better integrations, so by creating even more openness within the Black Knight products, we will make it easier for other systems to integrate them more tightly, just as we have done at ICE.
ICE Mortgage Technology (and formerly Ellie Mae) has talked a lot about automating everything automatable in the mortgage industry. Does anything change in your automation mission if ICE acquires a loan servicing system?
It doesn’t change our automation mission at ICE, but what it does allow, is our ability to accelerate the delivery of value to lenders and homebuyers. Not only is the mortgage process still heavily analog, but it is also highly fragmented, especially from a homebuyer’s perspective. If I am purchasing a home, I have one experience when I am shopping for a mortgage, I have another experience when I apply, then another when I am submitting required documents and then still another once my loan is funded and I am making payments or checking my balance.
Homebuyers are often having to go through this entire process by interacting with multiple systems and interfaces, as opposed to having one consistent experience from start to finish. We see an opportunity for creating a single consumer experience, where a lender can provide every home buyer step and action through an intuitive single consumer engagement solution.
What happens with employees for Black Knight and ICE Mortgage Technology?
We intend to continue to make all Black Knight solutions available in the market, which means we need to have the people who know how to run and continue to innovate those solutions. What is most exciting about bringing the teams together is the depth of mortgage experience that both companies have.
What level of investment is ICE looking to make in the mortgage space moving forward?
We are focused on innovation that improves the homebuyer experience, lowers the cost of origination and advances the analog to digital evolution in the mortgage industry. In addition to continuing the ongoing investments in all the products and services that both ICE and Black Knight make available today, we are committing more than $200 million dollars to accomplish the modernization and openness that I mentioned relative to some of the Black Knight solutions.
Beyond that, we are also increasing our investments in our full suite of underwriting automation tools which we call our Analyzers. We are also creating the ability for the industry to store RON videos in MERS and associate it with a MIN number, as we continue our investment in the eClose space.
Why would a lender be concerned about this deal and why do you think they should be excited?
Any time that there is any sort of change, there will always be some who will be unsure of what that change will mean for them. I would point those folks to a few important facts. First, ICE has a deep and extensive experience of adding value to lenders when we acquire and integrate new solutions.
We leverage a third-party firm to independently calculate the return on investment for lenders when they take advantage of our integrated acquisitions. That ROI for lenders has increased from $570 to over $1,400, per loan, over the course of the last few years and that ROI represents a direct impact to lowering the lenders cost of origination. Lenders should have incentives to pass these cost savings to home buyers as they try and compete to originate more loans.
We see an opportunity to grow this ROI even more for lenders through our acquisition of Black Knight, further lowering their cost of origination. We also intend to provide servicers with greater access to their data in MSP and to enable lenders, partners and servicers to build upon all of the platforms that we will offer, through robust APIs. We are excited to enable lenders and servicers with these capabilities. As a former lender myself, there is a lot to be excited about.
Joe Tyrrell is President of ICE Mortgage Technology.
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To contact the author of this story:
Joe Tyrrell at [email protected]
To contact the editor responsible for this story:
Sarah Wheeler at [email protected]