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Federal antitrust regulators have moved to dam Intercontinental Trade 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 corporations and drive up prices for lenders and homebuyers.

Intercontinental Trade (ICE) owns the most well-liked 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 not less than final June when the Federal Commerce Fee (FTC) despatched ICE and Black Knight a “second request” for extra data 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 providers,” the FTC stated in asserting a 4-0 vote to provoke a continuing earlier than an administrative legislation choose.

In a press release, ICE stated 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 stated. “Whereas that litigation performs out, the corporate is constant its work towards closing the acquisition, which it expects to finish within the third or fourth quarter of this yr.”

In its criticism, the FTC stated its assessment of inside ICE paperwork revealed the usage of a number of “levers” to develop income, together with worth will increase to Embody clients.

Along with mortgage origination methods, mortgage lenders depend on many suppliers of “ancillary providers,” equivalent to doc distributors, borrower point-of-sale and product and pricing engines (PPEs) that generate mortgage pricing primarily based 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 providers 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 trade chief, serving lenders that originate as a lot as 40 p.c of the nation’s residential mortgages every year,” FTC attorneys stated of their criticism. “Second to Optimum Blue is its shut competitor, ICE’s Embody Product and Pricing Service PPE (“EPPS”), at the moment obtainable solely to lenders who use the Embody LOS.”

Constellation Net Options is a subsidiary of Constellation Software program Inc., a publicly traded firm primarily based in Toronto with a market capitalization of $34.9 billion ($48 billion Canadian) and the mother or father 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 “capability, assets and incentive to switch the depth of the competitors between ICE and Black Knight.”

‘Ongoing development’ towards consolidation

The FTC stated it’s additionally anxious 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 steady 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 embrace 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 corporations,” the FTC stated. “ICE plans to proceed an trade development towards consolidation and vertical integration by buying Black Knight’s numerous ancillary providers to spherical out ICE’s personal choices. As ICE accumulates extra ancillary providers, its incentive to drawback third-party distributors will improve as its must do enterprise with third events who at the moment present these providers 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 may 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 present owners perceive new money-saving mortgage applications
• Eliminating inaccurate charges and reducing prices for shoppers by linking mortgage origination and servicing methods
• Connecting lenders with potential consumers in traditionally underserved markets by integrating origination and servicing information
• Lowered minority bias in house valuations

Tim Bowler, president of ICE Mortgage Know-how, sounded the same notice Thursday.

Tim Bowler

“We’re disillusioned that the FTC has filed litigation to stop ICE from closing our acquisition of Black Knight,” Bowler stated in a press release. “The proposed acquisition can carry to life a real end-to-end resolution for the mortgage trade, benefitting aspiring and present owners throughout the US.”

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

These prices “doubtless will probably 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 lead to a proportionally bigger worth improve for a homebuyer in search of a $200,000 mortgage than for a homebuyer that may afford a $1,000,000 mortgage,” FTC attorneys stated of their criticism.

“Equally, elevated origination prices will have an effect on homebuyers who should finance their house purchases to a better 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 criticism, whose allegations will probably be tried in a proper listening to earlier than an administrative legislation choose.

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Electronic mail Matt Carter