The mortgage tech industry has taken its fair share of punches in 2023. But for Intercontinental Exchange, Inc. (ICE), it was a year of solidifying its dominance in the mortgage space.
It’s been more than a year since ICE’s acquisition of mortgage data juggernaut Black Knight for $11.9 billion, the watershed moment in the mortgage tech space that integrated two of the industry’s biggest rivals.
With the deal expanding ICE’s total addressable market to $14 billion, ICE set its sights on becoming a “life-of-loan platform” — powering origination to final settlement, all in a unified digital ecosystem.
By bringing the two companies’ numerous capabilities and features together, “we have a combined platform that provides a true life-oloan offering that will drive transparency and efficiencies across the workflow,” Ben Jackson, president and chair of ICE Mortgage Technology, told analysts shortly after completing the Black Knight deal in September.
ICE’s big plans to dominate
ICE expects the integration of data and technology across the mortgage workflow to enable greater automation, in turn reducing friction and lowering the costs to originate a home loan for everyone involved.
With Black Knight’s Optimal Blue no longer under its umbrella, ICE is developing its own PPE to provide additional options to lenders and partners.
“We plan to maintain and invest in our own product and pricing engine, further strengthening the mortgage ecosystem by providing additional options and greater efficiencies to lenders, servicers and partners. Ultimately, lowering acquisition costs for lenders and enabling those savings to be passed to the consumer,” Jackson told analysts after the deal closed.
More than $300 million worth of opportunities exist for ICE to go after, including cross-selling its data and document automation platform to Black Knight’s entire MSP mortgage servicing system, said ICE executives.
“There’s a little north of 100 [MSP clients] and we believe that 40 of those are not on Encompass today. That represents roughly 15% to 20% market share of annual loan volume that we think we’re going to have a great opportunity [to capture],” according to Jackson.
Bumpy ride to close the deal
The merger deal gave ICE the opportunity to fully digitize the mortgage origination and servicing experience from start to finish. But ICE went through a rocky 16 months after first announcing plans to acquire Black Knight.
The staunchest opposition to the deal came when the Federal Trade Commission (FTC) — led by commissioner Lina Khan — sued ICE to stop the acquisition. The FTC claimed the deal would give ICE and Black Knight a significant position in the market for loan origination software, stifle innovation and reduce lenders’ choices for both origination and mortgage servicing.
In order to save the deal, the two firms agreed to sell Black Knight’s Empower and product and pricing engine (PPE) unit, Optimal Blue, to Constellation Software, a Canadian software company.
The two firms also amended their deal terms to reduce the valuation of Black Knight to $11.8 billion, about 11% lower than the initial valuation of $13 billion.
After months of review, the FTC accepted a binding settlement that saw both firms divest Black Knight’s two businesses.
Under the agreement, ICE and Black Knight are required to seek approval from the FTC before acquiring any other businesses related to LOS or PPE for the next 20 years. Both firms are also prohibited from enforcing any non-compete or non-solicitation provision or agreement against any employee who seeks or obtains a position in the divested businesses.
Concerns persist over ICE-Black Knight deal
ICE still faces challenges about one-way user seat charges as well as click/junk fees and tying in add-on services.
The Community Home Lenders of America (CHLA) raised these concerns after the acquisition was completed. These issues are exacerbated by a vertically integrated dominant LOS and servicing player, particularly since small lenders face significant risks in transitioning to any competitor.
According to the CHLA, ICE kept user seat charges artificially inflated despite the number of user seats declining for lenders in 2022.
In light of ICE’s “dominant market strength,” member lenders have no choice but to accept click fees — which ICE charges each time a lender needs to access certain vendor information in the LOS process — as well as tying in of add-on services and bundling products that lenders don’t want or need, the CHLA claimed.
Competing against ICE
Dark Matter Technologies, formerly Black Knight Origination Technologies, is focused on transitioning its Empower and Optimal Blue businesses to its new owners — Constellation Software.
Prices for Empower will remain the same for its clients, and Dark Matter Technologies will prioritize providing services and products that will cut down origination costs and employee borrower retention.
“When the market is crazy, lenders are looking for efficiencies because they can’t find and hire enough staff. Now we’re in a down cycle, they need to do it with fewer people and they need to be more efficient to get the cost down. So it’s really the same story, just different markets,” Rich Gagliano, CEO of Dark Matter Technologies, said in a previous interview with HousingWire.
Competitors of Dark Matter Technologies are origination technology providers — including ICE, Gagliano said.
“We believe that the automation, and the technology and the solution that we bring, and the ecosystem that we have, is best in the industry and really helps these lenders drive cost out of the system,” Gagliano said.
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