The mortgage industry needs a Taylor Swift

Ticketmaster's 2010 merger with Live Nation was the beginning of the end for the ticketing industry. With this move, the industry saw a vertically integrated concert behemoth that promised innovation and better consumer experiences instead leverage 70% market share to stifle competition, increase service fees and shut out uncooperative venues and vendors. These events culminated, just last month, in Ticketmaster's use of its industry chokehold to literally choke supply by shutting down general ticket sales for Taylor Swift's fans.

It took this recent ticket pre-sale meltdown for political leaders and regulators to get serious about the risk. The mortgage industry faces the same problem, but still has time to avoid ticketing's fate.

With the two most dominant mortgage technology service providers, ICE and Black Knight, poised to join forces, a dangerous monopoly is on the brink of formation, but where's the mortgage industry version of Taylor Swift to wake everyone up?

Like Ticketmaster-Live Nation, the ICE-Black Knight combination will have unrivaled control over critical technology and access points for mortgage origination and servicing. This acquisition follows ICE's purchases of MERS (loan registries), Ellie Mae (origination system), and Simplifile (closing technology). The new, combined company will dominate the entire customer-facing mortgage vertical.

As powerful combinations like these emerge, they promise efficiency and access, but along the way they gain the strength to shut out competition, blunt innovation, and extract increasing fees from their customer base.

When ICE announced its final deal for MERS in 2018, the promise was greater efficiency. The cost to register a loan on the MERS System in 2018 was $11.95; today that cost is $24.95.

When ICE announced its purchase of Ellie Mae in 2020, the promise was digitizing the lending process and reducing the cost to create a mortgage from $8,000 to $5,400. ICE failed to meet this promise and the cost to originate a loan today is nearly $11,000.

When ICE announced its acquisition of Black Knight earlier this year, the promise was that the combination would lower the cost of obtaining a mortgage. But in ICE's most recent earnings report — delivered during a time when mortgage volume has dropped 60% and lenders are shedding jobs as they lose $600 per loan — ICE outlined its strategy of "pushing [its customers] very hard" into long-term, higher-cost subscription contracts, boasting that "two thirds of [its] customers that renewed in the third quarter [of 2022] renewed at higher subscription base levels" compared to the beginning of the quarter.

Government agencies protecting consumer welfare and accessible credit should be worried about the latest acquisition in this pattern. But the industry itself should be just as worried — and far more active.

Potential monopoly power is, of course, a threat to direct competitors, both in the primary share markets, like mortgage origination and servicing systems, as well as the integrated and tied secondary markets, like registry and service vendors.

But it's also a threat to the users like lenders and servicers, who become vulnerable to rent extraction in the absence of competition. And, as seen in the Taylor Swift-Ticketmaster fiasco, that competitive vacuum puts users at the mercy of service disruptions by a single source of failure. It essentially positions the monopolist between companies and their customers.

What's even worse for the mortgage industry is that, even for lenders who use non-ICE systems — like lenders with custom technology, whom ICE has expressly identified as their competition — the government-backed loan buyers currently do not allow use of any registry other than ICE's MERS. So, even non-ICE system users are still stuck paying ICE on every loan through MERS and its government-mandated private monopoly.

As industry power has consolidated, rents and costs have increased. As lenders lose money and employees lose jobs, ICE continues reporting record recurring revenues and pursuing its public plan for maximum value extraction. And as loan originators and servicers continue to battle for borrowers, the two biggest market players are combining to interpose a single technology vendor between the lenders/servicers and their customers.

So, the competitors of ICE, and specifically servicers and lenders, must take seriously — and do something about — the impending risk of the market dominance and monopoly they're facilitating. Because, for now, these companies are competing with ICE for their margins. Soon they'll be competing with them for access to their own customers.