In these occasions, double down — in your abilities, in your information, on you. Be part of us August 8-10 at Inman Join Las Vegas to lean into the shift and be taught from the perfect. Get your ticket now for the perfect value.

Federal antitrust regulators have moved to dam Intercontinental Alternate Inc.’s pending $11.7 billion acquisition of actual property software program, information and analytics supplier Black Knight, saying the deal would put an finish to intense competitors between the 2 firms and drive up prices for lenders and homebuyers.

Intercontinental Alternate (ICE) owns the preferred mortgage origination system (LOS) utilized by U.S. mortgage lenders, Embody. Black Knight owns the second-largest mortgage origination system, Empower.

Antitrust regulators have been scrutinizing the deal since at the very least final June when the Federal Commerce Fee (FTC) despatched ICE and Black Knight a “second request” for extra info and paperwork.

ICE and Black Knight had hoped to appease the FTC, asserting Tuesday that they’d reached an settlement to promote Empower to Constellation Net Options. The FTC shattered these hopes Thursday by launching an administrative continuing to dam the merger.

“By eliminating Black Knight as a competitor, the deal would free ICE to extra aggressively elevate costs that it prices mortgage lenders for origination companies,” the FTC mentioned in asserting a 4-0 vote to provoke a continuing earlier than an administrative legislation choose.

In a press release, ICE mentioned it “strongly disagrees with, and can vigorously oppose” the FTC’s problem.

“ICE is totally assured in our place and appears ahead to presenting it in court docket,” the corporate mentioned. “Whereas that litigation performs out, the corporate is continuous its work towards closing the acquisition, which it expects to finish within the third or fourth quarter of this yr.”

In its grievance, the FTC mentioned its evaluate of inner ICE paperwork revealed using a number of “levers” to develop income, together with value will increase to Embody clients.

Along with mortgage origination techniques, mortgage lenders depend on many suppliers of “ancillary companies,” reminiscent of doc distributors, borrower point-of-sale and product and pricing engines (PPEs) that generate mortgage pricing based mostly on borrower standards.

The FTC dismissed Black Knight’s proposal to promote Empower to Constellation Net Options as a treatment, noting that Constellation would function a reseller of ancillary companies to be supplied by ICE, together with Black Knight’s Optimum Blue mortgage product and pricing engine (PPE).

“Black Knight’s Optimum Blue is the clear business chief, serving lenders that originate as a lot as 40 % of the nation’s residential mortgages every year,” FTC attorneys mentioned of their grievance. “Second to Optimum Blue is its shut competitor, ICE’s Embody Product and Pricing Service PPE (“EPPS”), at present obtainable solely to lenders who use the Embody LOS.”

Constellation Net Options is a subsidiary of Constellation Software program Inc., a publicly traded firm based mostly in Toronto with a market capitalization of $34.9 billion ($48 billion Canadian) and the guardian firm of U.S.-based Constellation Mortgage Options (CMS).

However as a result of Black Knight wouldn’t be transferring a standalone enterprise, the FTC alleges Constellation Net Options would lack the “skill, assets and incentive to switch the depth of the competitors between ICE and Black Knight.”

‘Ongoing development’ towards consolidation

The FTC mentioned it’s additionally frightened that if the deal had been to undergo, it “might speed up an ongoing development towards vertical integration and consolidation” in mortgage expertise.

ICE added Embody to its secure of merchandise by way of its $11.4 billion acquisition of Ellie Mae in 2020. That deal was preceded by ICE’s 2016 acquisitions of Mortgage Digital Registration Methods Inc. (MERS), a database monitoring mortgage mortgage possession, and Simplifile, an e-recording and shutting software program agency ICE acquired in 2019.

Along with Empower, Black Knight’s mortgage expertise merchandise embody mortgage servicing platform Compass Analytics, which Black Knight purchased in 2019, and Optimum Blue, which Black Knight acquired in 2020.

“Each ICE and Black Knight are traditionally acquisitive firms,” the FTC mentioned. “ICE plans to proceed an business development towards consolidation and vertical integration by buying Black Knight’s varied ancillary companies to spherical out ICE’s personal choices. As ICE accumulates extra ancillary companies, its incentive to drawback third-party distributors will enhance as its have to do enterprise with third events who at present present these companies to customers of Embody and Empower will diminish.”

ICE and Black Knight have maintained that the merger would permit them to create a “lifetime of mortgage” mortgage platform with cost-saving efficiencies that will profit shoppers.

‘Lifetime of mortgage’ mortgage platform

ICE envisions constructing a “lifetime of mortgage” mortgage platform by integrating expertise constructed by Black Knight with its personal options. | Supply: Could 5, 2022 ICE investor presentation

In a 2022 investor presentation, ICE claimed advantages to homebuyers would come with:

• Digitization and automation of mortgage originations, reducing prices for all events
• Surfacing information to assist current owners perceive new money-saving mortgage packages
• Eliminating faulty charges and reducing prices for shoppers by linking mortgage origination and servicing techniques
• Connecting lenders with potential consumers in traditionally underserved markets by integrating origination and servicing information
• Diminished minority bias in dwelling valuations

Tim Bowler, president of ICE Mortgage Know-how, sounded an analogous observe Thursday.

Tim Bowler

“We’re disenchanted that the FTC has filed litigation to forestall ICE from closing our acquisition of Black Knight,” Bowler mentioned in a press release. “The proposed acquisition can carry to life a real end-to-end answer for the mortgage business, benefitting aspiring and present owners throughout america.”

However the FTC mentioned it expects the merger would disproportionately hurt lower-income and first-time homebuyers if lenders find yourself paying greater prices for mortgage origination techniques and ancillary companies like mortgage merchandise and pricing engines.

These prices “seemingly shall be handed on to shoppers within the type of greater mortgage origination prices,” the FTC alleged.

“On condition that origination prices stay comparatively fixed whatever the quantity of a mortgage, a rise in origination prices will end in a proportionally bigger value enhance for a homebuyer looking for a $200,000 mortgage than for a homebuyer that may afford a $1,000,000 mortgage,” FTC attorneys mentioned of their grievance.

“Equally, elevated origination prices will have an effect on homebuyers who should finance their dwelling purchases to a higher diploma than wealthier homebuyers who might pay money. Put merely, greater origination prices will disproportionately hurt lower-income and first-time homebuyers.”

Attorneys for ICE and Black Knight have 14 days to reply the FTC’s grievance, whose allegations shall be tried in a proper listening to earlier than an administrative legislation choose.

Get Inman’s Additional Credit score E-newsletter delivered proper to your inbox. A weekly roundup of all the most important information on this planet of mortgages and closings delivered each Wednesday. Click on right here to subscribe.

Electronic mail Matt Carter