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FTC Moves To Block Black Knight, ICE Merger

Christine Stuart
Mar 09, 2023

Says it 'would drive up costs, reduce innovation, and reduce lenders’ choices.'

There’s no appeasing the anti-trust regulators at the Federal Trade Commission, which moved to block the sale of Black Knight Inc. to Intercontinental Exchange Inc. (ICE).

The FTC moved to block the sale Thursday saying it would drive up costs, reduce innovation, and reduce lenders’ choices for tools necessary to generate and service mortgages.

“For many Americans, buying a home is an important investment toward building financial security,” said Patty Brink, Acting Deputy Director of the Bureau of Competition. “This deal would reduce competition in key areas of the mortgage process, ultimately raising costs for lenders and homebuyers. The FTC will intervene when illegal mergers risk harming competition in such critical markets.”

On Tuesday, the companies moved to sell Black Knight’s Empower loan origination system (LOS) business to Constellation Software, based in Toronto, Canada, which acquires, manages, and builds vertical market software businesses.

But for the FTC it was too little, too late.

Not surprisingly, ICE "strongly disagrees with and will vigorously oppose" the FTC action. “We are disappointed that the FTC has filed litigation to prevent ICE from closing our acquisition of Black Knight," said Tim Bowler, president of ICE Mortgage Technology. "The proposed acquisition can bring to life a true end-to-end solution for the mortgage industry, benefitting aspiring and current homeowners across the United States.” While that litigation plays out, the company is continuing its work toward closing the acquisition, which it expects to complete in the third or fourth quarter of this year.

LOS are software used to manage the documents and workflow required to generate a mortgage. ICE owns the dominant LOS in the United States, called Encompass. Black Knight owns the second-largest LOS in the United States, known as Empower. In the complaint filed today, the FTC alleges that this deal would allow ICE to raise costs to lenders, which would then be passed to homebuyers.

In addition to harm in the LOS market, the deal would also harm competition for product pricing and eligibility engines, or PPEs, and other various ancillary services that are add-ons to loan origination software. PPEs are used by lenders to obtain the best interest rates for the homebuyer. If the deal proceeds, it would eliminate PPE competition between the merging parties and would increase ICE’s ability and incentive to use control of its LOS to undermine competition from harm rival PPEs and other add on providers.

The FTC said in its complaint that ICE’s Encompass LOS competes head-to-head with Black Knight’s Empower, and the two companies offer discounts and price concessions to win or protect business from each other. In addition to competing on price, ICE and Black Knight compete to attract LOS customers by offering the best and broadest array of mortgage origination related services integrated with their respective LOSs.

By eliminating Black Knight as a competitor, the deal would free ICE to more aggressively raise prices that it charges mortgage lenders for origination services, the FTC said. Internal ICE documents reflect its use of several “levers” to grow revenue, including price increases to Encompass customers, according to the FTC’s complaint.

The FTC’s vote to file the complaint was 4-0.

Scott Olson, executive director of the Community Home Lenders of America, said in a statement, "CHLA strongly commends the FTC for taking legal action to block the purchase of Black Knight by ICE,  confirming what we have said all along - which is that the purchase would 'harm competition and lead to higher costs for lenders and homebuyers." CHLA, according to its website, "is a national non-profit association of small and mid-sized community-based mortgage lenders."

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