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IPO / M&AMortgage

Waters calls on FTC to review ICE’s $13B Black Knight deal

"I am concerned about the negative outcomes that may be passed on to consumers, such as higher prices, if such consolidation were to lead to decreased competition," congresswoman says

Powerful House Financial Services Committee Chairwoman Maxine Waters wants regulators to closely scrutinize the proposed $13 billion purchase of Black Knight by Intercontinental Exchange (ICE).

In a letter sent to the Federal Trade Commission (FTC) this week, the California Democrat raised concerns about the merger, which would make ICE the largest mortgage services company in the housing ecosystem.

“In particular, I am concerned about the negative outcomes that may be passed on to consumers, such as higher prices, if such consolidation were to lead to decreased competition,” Waters wrote in a letter to FTC Commissioner Lina Kahn. “Today, ICE and Black Knight each play a dominant role in the technology market that powers America’s mortgage originations (more than $2 trillion per year), servicing ($12 trillion in loans outstanding), consumer rate pricing, registry and consumer data repository, and consumer data and marketing activities.”

If ICE were to close the deal, it would be able to exert “significant market power over loan pricing for consumers, access to and sale of consumer data, and mortgage pricing software,” she wrote. “Moreover, 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.”

Waters said that ICE, which owns the New York Stock Exchange, has juiced prices before.

“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. Moreover, 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.”

“For example, since being acquired by ICE in 2013, data prices on NYSE increased over 1,000% in just over five years,” Waters said.

She broke out six areas of concern, including mortgage originations, writing that ICE’s Encompass LOS has 50% market share while Black Knight’s Empower LOS has about 10 to 15% market share.

“What assurances can be provided that lenders, especially small and mid-size companies, will not face onerous pricing increases or prolonged service delays if the deal is approved?” she asked, adding that companies often pass costs on to consumers.

Waters also pointed to antitrust complaints filed against Black Knight, whose mortgage servicing platform has approximately 65% of the $12 trillion U.S. servicing market. (Black Knight has disputed the claims and alleged that PennyMac attempted to copy their platform.)

“Given these allegations and Black Knight’s significant servicing market share, how will Black Knight’s MSP system interface with mortgage origination systems not owned by ICE? What claims may be made to servicer and consumer data?” she asked.

In a research memo on Thursday, analysts at Keefe, Bruyette & Woods said the letter does not “highlight anything very incremental to our existing views around the anti-trust risk” surrounding the deal.

“In particular, Chairwoman Waters highlights the significant combined market share of ICE and BKI’s loan origination systems as a top area of concern, which fits with our thinking that BKI’s Empower is likely to be divested (which we estimate represents only a mid- to high-single-digit percent of BKI’s earnings and is not a strategically important part of the platform for ICE),” KBW’s Ryan Tomasello wrote. “We reiterate our view that the FTC will likely sue to block the transaction, but that the deal still has a greater than 50% probability of closing when considering this.”

Several prominent voices in the mortgage industry, including former FHA Commissioner Dave Stevens, have spoken out against the deal, arguing it would be harmful if so much consumer data were owned by one company.

In an op-ed published on HousingWire in July, ICE Chairman Joe Tyrrell outlined the reasons he says the deal should proceed. Among them? Modernization of the mortgage servicing platform and better integration across solutions to eliminate unnecessary friction.

Tyrrell argued that the acquisition was not about market share but “solving real problems” in the industry. He said they provide customers the option of selecting multi-year agreements with built-in price projections. Most customers select four or five year terms, and said Black Knight is similar in its pricing structure.

Tyrrell said the deal wouldn’t hurt competition but in fact spur innovation.

“ICE is usually the first company that most start-ups approach to create awareness of their offerings and get help distributing their products,” Tyrrell argued. “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.”

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