Black Knight, ICE go headfirst against FTC

Black Knight and Intercontinental Exchange are contesting the Federal Trade Commission's move to halt their merger.

Each company filed its own response with the FTC on March 20 to the administrative complaint that will be heard in-house at the agency.

The FTC not only cites the parties' loan origination systems, ICE Mortgage Technology's Encompass and Black Knight's Empower, but also notes concern about competition for "ancillary services." In particular, the FTC cited competition in product and pricing engines between Black Knight's Optimal Blue and the internal technology embedded in Encompass.

Both companies raise the defense that the FTC handling the proceeding internally violates the U.S. Constitution on several counts, including due process, by not having it heard by a neutral party.

And as is being seen in several other legal actions involving internal hearings by federal regulators, both companies raise a separation of powers argument.

"These administrative proceedings are invalid because Congress unconstitutionally delegated legislative power to the Commission by failing to provide an intelligible principle by which the Commission would exercise the delegated power," the Black Knight papers said, while something similar is in Intercontinental Exchange's filing.Black Knight declined to comment beyond what was in its papers. Intercontinental Exchange and the FTC did not respond to a request for comment.

In its response, Black Knight stated the complaint ignored the pending sale of Empower to Constellation Software, made public just prior to the release of the FTC complaint. In addition, the filing raised the court ruling in favor of UnitedHealth against the Justice Department, when the latter tried to stop the merger with Change Healthcare. The health care companies were able to proceed with their combination when the judge said a related divestiture was sufficient to overcome antitrust concerns and dismissed the complaint.

Intercontinental Exchange said it notified the agency in December that the parties would divest Empower "in an effort to address the FTC's misplaced concerns and move forward with the transaction."

Because of the sale, as well as Black Knight's dropping stock price, the total compensation for the deal was cut to a valuation of $11.7 billion from the original $13.1 billion.

"Rather than engage with and consider the divestiture, the FTC rushed to file a complaint that fails to account for the divestiture's effect," the Black Knight response said. "As will be shown in this proceeding, this divestiture preserves — if not enhances ⸺ competition in the LOS space."

It then goes on to say that even without the Empower sale, the deal does not create an anticompetitive situation. "Numerous LOS providers compete to win business from lenders of all sizes and will continue to do so post-transaction," Black Knight continued.

The Intercontinental Exchange filing makes a similar argument. "Many LOS providers (e.g., Blue Sage, Byte, Calyx, Finastra, Fiserv, Integra, Mortgage Cadence and Wipro) have won — and continue to win — business from lenders of every size," it declared.

Regarding PPEs, Black Knight alleged FTC's actions are based on "a fundamental misunderstanding of the competitive dynamics."

The Encompass PPE is a free add-on to the loan origination system that cannot be used with any competing technology. "Separately, third-party commercial PPE providers, including Black Knight's Optimal Blue, offer enhanced automation and PPE capabilities through LOS-agnostic PPE solutions that a lender may choose to purchase in addition to and to integrate with its LOS," the filing said.

The other issue raised by deal opponents is that the combination, which includes ICE Mortgage Technology units MERS and Simplifile, will dominate the whole loan creation chain. Intercontinental Exchange rebutted that argument.

"Nor does the proposed transaction present any meaningful vertical concerns," its submission said. "Encompass's open platform is integrated with hundreds of third-party vendors, many of which provide solutions that compete with ICE."

A large share of Encompass customers, even with the built in PPE, also use Optimal Blue, ICE added.

In a September 2020 interview with National Mortgage News that took place just after Intercontinental Exchange bought Ellie Mae and Joe Tyrrell took the helm at ICE Mortgage Technology, Tyrell said even if the larger company were to acquire other pieces, competitors would able to offer their products, and he specifically mentioned Optimal Blue. (Tyrrell left the company effective March 1.)

"We see this with companies like Optimal Blue where they rely very heavily on their ability to distribute their products to our customers; we also have our product and pricing engine," Tyrrell said at the time. "We will not only offer our own but will continue to partner so lenders have choice in how they run their business with Ellie Mae."