Black Knight deal helps shrink ICE Mortgage losses

Intercontinental Exchange's mortgage technology business, which grew significantly in 2023 with the September acquisition of Black Knight, posted an operating loss of $276 million for the full year and $74 million for the fourth quarter.

That compares with a third quarter operating loss of $157 million and fourth quarter 2022 operating loss of $6 million. For all of 2022, the mortgage business had an operating profit of $57 million. Lower transaction volumes contributed to GAAP losses for the business.

The parent company provided pro forma operating results for ICE Mortgage Technology, which treats Black Knight as if Intercontinental Exchange owned it since 2021.

For the fourth quarter, pro forma operating income was $193 million, an improvement versus the third quarter operating income of $172 million and fourth quarter 2022 of $180 million.

But for the full year it fell to $724 million from $868 million in 2022.

The acquisition of Black Knight — which brought together the largest mortgage servicing platform, MSP, with Encompass, the most used loan origination system — closed at the start of September following a legal battle with the Federal Trade Commission. The deal required Black Knight to sell Empower and related assets to Constellation Software and that business was rebranded to Dark Matter. In a separate deal required for regulatory approval, Constellation purchased Optimal Blue as a stand-alone business.

Intercontinental Exchange's mortgage business added 37 new Encompass clients in the fourth quarter and four new MSP customers. That contributed "to a record for new sales on Encompass and the highest in the last five years for MSP and Encompass combined," Ben Jackson, president of Intercontinental Exchange and chairman of ICE Mortgage Technology, said during the company's earnings call.

Among those signing on to Encompass were Raymond James Bank and Carrington Mortgage.

Meanwhile MSP added Capital Mortgage Solutions and CapEd Credit Union (an existing 

Encompass customer), to start the fourth quarter, Jackson disclosed.

This year, "a near-term opportunity to drive greater transparency and efficiency includes integrating Black Knight datasets, such as our closing fee data, tax, flood and valuation models into our Encompass and MSP systems," he continued.

"Another near-term example is integrating our data and document automation platform into MSP, building a digital bridge from origination straight through to servicing, reducing cost, time and errors to onboard loans to the MSP system," Jackson added.

Fourth-quarter mortgage technology revenue doubled to $502 million from $249 billion, benefiting from the ownership of Black Knight for the entire period.

The servicing business ICE Mortgage Technology acquired from Black Knight provided $219 million of revenue. Another $70 million of revenue came from data and analytics in the fourth quarter, $56 million more than the previous year, also likely due to the addition of Black Knight to ICE's existing business.

Origination technology revenue slipped to $170 million from $181 million, while closing solutions were basically flat at $43 million versus $44 million one year prior.

Recurring revenue from all sources for ICE Mortgage Technology grew to $397 million from $164 million in the fourth quarter of 2022.

Full year revenue did not increase as much, rising to $1.32 billion from $1.13 billion in 2022.

"While, of course, those recurring revenues are important, a lot of these products are also going to have a transaction component," Warren Gardiner, chief financial officer, said, noting that last year was the worst for origination volume since at least 1991.

"But we've continued to add new customers, the current customer base has continued to add additional products, and we've expanded that network. So that when those transactions do normalize, we're going to be really benefiting from that, not only on the recurring side, but I think on the transaction side as well," he said.

For this year, consistent with the near-term outlook provided during a call following the Black Knight deal closing, revenue growth for the mortgage technology segment will be in the low to mid-single-digit range on a pro forma basis.

"The low end of our range assumes only a modest improvement in application and origination volumes, while the high end underwrites a more substantial improvement in the double-digit growth range," Gardiner said.