Rep. Maxine Waters, the ranking member of the House Committee on Financial Services, is concerned about the Federal Trade Commission settlement agreement that will allow Intercontinental Exchange Inc. (ICE) and Black Knight to merge.
“In addition to potentially creating a housing finance conglomerate that would dwarf all other players in the industry, I remain concerned that this merger has the potential to harm consumers by displacing competing products and businesses that help mitigate rising loan origination and servicing costs, thereby pushing the dream of homeownership further out of reach for families across the country,” Waters wrote in a letter to FTC Commissioner Lina Kahn.
The FTC sued ICE to block the merger with Black Knight in March saying it would stifle innovation and reduce lenders’ choices, ultimately raising costs for lenders and homebuyers.
Following Black Knight’s agreement to divest and sell its Empower loan origination system (LOS) and Optimal Blue product pricing engine (PPE) to Canadian company Constellation Software Inc. to mitigate antitrust concerns, the FTC, ICE and Black Knight jointly stipulated to dismiss a federal court case, clearing a major regulatory hurdle that should allow the deal to go through.
With the parties planning to come to mutually acceptable terms by August 25, Waters asked the FTC to consider three areas of protection safeguards – community benefits, antitrust protections and financial stability – as the agency negotiates any agreement with ICE and Black Knight.
The housing market already faces serious consolidation and affordability concerns, the FTC should ensure the deal would avoid additional pricing pressures, Waters argued.
“There is no doubt that the combined technology services business of ICE and Black Knight’s, even with planned divestitures, will affect the pricing of mortgage loans and mortgage servicing rights in profound ways.”
The FTC should make it mandatory for ICE and Black Knight to establish an advisory board to review how the company is meeting its obligations pursuant to the Agreement Containing Consent Order (ACCO) – including steps the company can take to benefit the public, especially underserved borrowers and borrowers of color, Waters said.
The agency should “require the ICE-Black Knight conglomerate to engage in technical assistance, partnerships, and other activities to support smaller industry players, especially diverse and mission-driven community lenders like community development financial institutions (CDFIs) and minority depository institutions (MDIs) who are effective in reaching and serving borrowers of color and other underserved borrowers.”
Waters also noted ICE and Black Knight should be prohibited from “shackling” Constellation with non-compete clauses and other contractual provisions that would limit them from integrating or merging with other third parties in the mortgage technology market.
Divestitures of Empower and Optimal Blue should lead to greater competition in the market, not outsized competitive advantages for the newly merged ICE-Black Knight, Waters said.
“The FTC must account for how products are bundled and sold in the market and ensure that Black Knight’s sale of Empower and Optimal Blue includes all products that are necessary to keep Constellation Software Inc. fully independent and competitive.”
Waters also called on the FTC to conduct a short and long-term review to assess its effects and determine whether the acquisition resulted in harm to consumers, unfair or deceptive acts.
“The ACCO and divestiture should be monitored over a long period of time (i.e. 10 years) to ensure the behavior of the merging parties is consistent with the terms of the deal and a competitive marketplace and allow the deal to be reopened if any terms of the deal are violated,” the letter read.
Analysts at Keefe, Bruyette & Woods expect the FTC to settle on the merger deal with ICE and Black Knight.
ICE and Black Knight’s agreement to sell its Optimal Blue business leaves the FTC with a weak case as it remedies the remaining horizontal overlap cited in the FTC’s complaint with a competitive buyer, Ryan Tomasello, managing director of KBW, said in the note published in July.
The agency also lost several other high-profile antitrust cases in recent months.