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Federal antitrust regulators are preparing to file a lawsuit next month challenging Intercontinental Exchange Inc.’s proposed $13 billion acquisition of software, data and analytics company Black Knight, Politico reported Monday.
Citing three anonymous sources “with direct knowledge,” Politico said officials at the Federal Trade Commission (FTC) aren’t convinced that Black Knight’s plans to spin off its Empower loan origination system would allay their concerns about the anticompetitive natures of the deal.
The FTC believes the deal would give Intercontinental Exchange (ICE) “too much power in the multi-trillion dollar U.S. mortgage market, and come at the expense of both higher home prices for consumers and competitors in the mortgage data and services industry,” Politico reported.
ICE, Black Knight and the FTC declined requests for comment from Politico. ICE and Black Knight declined requests for comment from Inman and the FTC did not immediately respond to a request for comment.
In announcing it had reached a definitive agreement to acquire Black Knight last May, ICE claimed the merger would benefit consumers by creating a “life of loan” mortgage platform with cost-saving efficiencies.
But critics of the deal say ICE — which already offers its own popular mortgage loan origination system (LOS) Encompass, thanks to its 2020 acquisition of Ellie Mae for $11.4 billion — would have too much power to set pricing for loan origination software and related services if the deal were to go through.
The Community Home Lenders Association (CHLA) asked the U.S. Department of Justice last June to conduct an antitrust review of the proposed merger, citing potential impacts on consumers and smaller independent mortgage banks.
Because lenders use ICE’s Encompass platform to originate about 50 percent of all mortgages and Black Knight’s Empower accounts for another 10 percent, the combined companies would have “at least 60 percent of the entire origination market,” CHLA claimed.
On June 7, the FTC sent ICE and Black Knight a “second request” for additional information and documents. Of the record-breaking 3,520 deal transactions submitted to the FTC and Justice Department for antitrust review during the year ending Sept. 30, only 65 were subject to second requests for information.
On Dec. 21, Rep. Maxine Waters (D-California) wrote FTC chair Lina Khan asking the commission to review the implications of the merger not only on mortgage originations but servicing, record keeping, loan pricing, marketing and data privacy.
And on Feb. 6, Federal Financial Analytics Inc. (FedFin) — a think tank hired by a company contesting the merger — published a research paper urging the FTC to reject the merger or require ICE to divest itself of “significant” Black Knight assets.
On Feb. 9, Reuters reported that Black Knight Inc. was trying to sell its Empower loan origination system to address regulators’ concerns for around $400 million to potential buyers including private equity firms.
Although the FTC won’t comment on the specifics of its ongoing review, Holly Vedova, the director of the FTC’s Bureau of Competition, said in a Feb. 3 speech that in general, studies have shown that “divestitures have not worked nearly as well as we had hoped” in resolving past antitrust issues.
If the FTC does file a lawsuit challenging the deal, it could seek additional remedies. If ICE and Black Knight were to defend themselves, it could delay the deal’s close into 2024, Politico reported Monday.
The timing of the FTC’s lawsuit “could slip and no decision is final until a case has been filed,” Politico said, citing its anonymous sources.
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