The Federal Trade Commission is expected to challenge the $13 billion takeover of mortgage data company Black Knight by financial services giant Intercontinental Exchange, according to three people with direct knowledge of the matter.
A case is expected to be filed some time in March, said the people, who were granted anonymity to discuss a confidential matter. The FTC believes the deal would give Intercontinental Exchange, which also owns the NYSE, too much power in the multi-trillion dollar US mortgage market, and come at the expense of both higher home prices for consumers and competitors in the mortgage data and services industry , the people said.
The FTC has been investigating the deal since shortly after it was announced nearly a year ago and if the companies choose to defend against a possible lawsuit, it could potentially delay the deal’s close into 2024. The timing of a lawsuit could slip and no decision is final until a case has been filed, the people said.
A lawsuit would also be the latest volley from President Joe Biden’s antitrust enforcers, FTC Chair Lina Khan and Assistant Attorney General for antitrust Jonathan Kanter, who have both pledged to rein in corporate consolidation. The FTC is currently challenging deals including Microsoft’s takeover of video game giant Activision Blizzard, and the DOJ is likely to challenge JetBlue’s takeover of Spirit Airlines.
ICE founder and CEO Jeffrey Sprecher is a major GOP donor. His wife is former Georgia Republican Sen. Kelly Loeffler.
Spokespeople for ICE and Black Knight declined to comment. An FTC spokesperson declined to comment.
The ICE-Black Knight merger would bring together the two largest companies offering loan origination software, essentially the pipe connecting brokers with lenders. The companies have offered to sell Black Knight’s loan origination platform Empower, to resolve the so-called horizontal overlap between the companies, one of the people said. That is not enough, however, to allay the FTC’s concerns that the merger would give the combined company too much control over data and technology in the residential mortgage market, that person said.
The FTC believes that just selling Empower though does not curtail all of the head-to-head competition between the companies, two of the people said. Both companies offer a variety of services that operate with the loan origination platform, including the data analytics business Optimal Blue.
Reuters previously reported that Black Knight had hired bankers to help sell Empower.
ICE, which operates major financial exchanges and clearinghouses, has expanded into the mortgage market in recent years. It recently acquired Encompass, its loan origination offering, through its $11 billion purchase of mortgage software company Ellie Mae in 2020. And in 2018 it completed its buyout of Merscorp, which operates a national electronic registry of US mortgages.
In 2019 and 2020, Black Knight bought a pair of companies — Compass Analytics and Optimal Blue — that provide a variety of data and analytics services to lenders to help them price loans. Through those deals it has a leading position in the software used by banks to price loans.
Companies including the government-backed Fannie Mae and Freddie Mac as well as financial technology start-ups like Roostify and Blend rely on the loan origination platforms from Black Knight and ICE.
In another example of the rapidly consolidating mortgage technology market, Roostify was bought last week by CoreLogic, which itself fended off an earlier takeover bid by Black Knight.
“We depend on the interoperability of our platform across third-party applications and services that we do not control,” Blend says in securities filings. While it does not mention either Black Knight or ICE by name, it says it relies on loan origination and pricing tools that the combined company would dominate.
The companies’ Surefire and Velocify services also compete head-to-head in the marketing of mortgage services from lenders.
The deal has faced opposition from lawmakers, consumer groups, customers and competitors, with the FTC hearing a number of concerns from companies that rely on Black Knight and ICE that their access will either be lost or degraded after the merger, two of the people said.
The deal “would make ICE the largest mortgage services company in the housing ecosystem” said Rep. Maxine Waters (D-Calif.), the top Democrat on the House Financial Services Committee. The new company “could exert significant market power over loan pricing for consumers, access to and sale of consumer data, and mortgage software pricing,” she said in a late December letter to Khan urging the FTC to block the deal.
Federal Financial Analytics managing partner Karen Petrou urged the FTC to block the acquisition an early February reportarguing that combining ICE’s “critical mortgage services” with Black Knight would give it “unrivaled power to control the prices set on each mortgage, the terms on which credit is provided, the lenders offered the most advantageous terms, and the extent to which home ownership is available on affordable, equitable terms in rural, urban and majority-minority communities.”
That report outlining Petrou’s case was funded by an anonymous company opposing the deal, but Federal Financial Analytics said it had complete control over the final product.
Zachary Warmbrodt contributed to this report.