What the investment community is still trying to uncover intercontinental exchange (ICE) is considering a possible acquisition black Knight, Mortgage analysts expect to see consolidation if the deal goes through, but also forecast that stronger players will emerge on the servicing and loan origination systems side. In turn, this will provide more options for lenders.
Thank you for reading this post, don't forget to subscribe!“The core of what they (ICE) are achieving with Black Knight is the MSP – the mortgage servicing platform. This is a major missing part of ICE’s tech stack,” said Ryan Tomasello, Managing Director of Keefe, Bruyette and Woodssaid during a session in mortgage bankers association Technology Solutions Conference & Expo on Tuesday.
Tomasello explained that the servicing aspect of loans is a very under-invested and under-monetized area of a loan lifecycle, which is perhaps the most important factor in terms of servicing.
In mid-2022, the ICE-Black Knight deal raised concerns that it would raise costs for consumers and give ICE too much pricing power in the mortgage data market that lenders rely on. Community of Home Lenders Association (CHLA) claimed that Empower and ICE’s Encompass jointly control 60% of the loan origination software system.
In the latest development, the U.S. federal trade commission sued ICE last month to block the deal. The FTC said in the lawsuit that the merger would lead customers to use its mortgage services and products and claimed that the deal would stifle innovation by limiting lenders’ options for origination and mortgage servicing.
Ahead of FTC lawsuit, Black Knight announces sale of its Empower business to a Canadian subsidiary Constellation Software Inc., which was done in an attempt to address antitrust concerns. ICE and Black Knight also amended the terms of their deal last month to reduce Black Knight’s valuation to $11.8 billion, about 11% below its valuation at the time the agreement was announced last year.
Tech vendors and competitors in the space are waiting to see what the outcome of the deal will be and how Black Knight’s divestment of Empower could impact the creation of another loan origination system in the industry.
Tomasello said that multi-faceted tech platforms and scaling will be key for players to compete with the tech giant.
At the same time, a potential merger of the two big tech giants triggers optionality that creditors and servicers hadn’t considered before the deal was announced, said Mika Jindal, managing director and senior partner Boston Consulting GroupExplained.
“If you look at five years ago versus now it’s amazing how many new loan origination systems there are, how many new servicing platforms there are… I think there are a lot of interesting strong players that are trying to be in that second and third place. Are. situation if the deal goes through,” Jindal said.
production side of technological innovation
While technological innovation has benefited consumers’ mortgage experiences, more work needs to be done on the production side – particularly in reducing the cost to produce loans.
“We’ve gone through a decade where a lot of technology has been incorporated into the mortgage process, but we haven’t necessarily gotten the benefits when it comes to cost and cycle time (…). We would say that we have experienced things side, but it brings to light how much more there is to technology,” Jindal said.
According to a recent MBA survey, in the fourth quarter of 2022, loan origination costs will reach a record $12,450. The average loan production expense from the third quarter of 2008 to the last quarter of 2022 was $7,068 per loan.
Bose George, Managing Director Keefe, Bruyette and WoodsKnown efforts of lenders, such as rocket companiesWhich targets the buying market through various products.
“That’s what Rocket is doing with Rocket Money and the recently introduced credit card (…). All of those things could improve their ability to attract customers who are shopping at lower prices than usual.” Because the major costs that arise come from the acquisition of customers (…). Some of these investments may pay off over time,” said George.
rocket moneywhich allows customers to find subscriptions, manage bills and cancel recurring charges, and Rocket Companies’ credit card, which was launched late last month, is set to attract potential homebuyers.
But in an industry that is highly regulated, it will be the regulators who will play a key role in driving innovation.
“We’re seeing progress there federal housing finance agency (FHFA) solicit feedback on the technologies they should focus on (…). “Everyone needs to be involved in whatever area is going in order to drive industry innovation and reduce costs,” Tomasello said.
