ICE/Black Knight: US exchange bets on mortgage market rebound

The US mortgage industry is not an obvious place to put money right now. Rapidly rising interest rates, galloping house prices and still tight inventory have made it difficult for Americans to buy a home.

Enter Intercontinental Exchange. The owner of the New York Stock Exchange has faith in the technology side of the housing market. It is buying mortgage software firm Black Knight in a cash and stock deal valued at $16bn, including debt.

Best known as an exchange operator, ICE has pushed into the mortgage market in recent years. It bought Black Knight rival Ellie Mae in 2020 for $11bn including debt. It also owns Simplifile and Mers, both track mortgage records.

The process of taking out a mortgage is tedious and time-consuming in the US. ICE has sensibly concluded that software that can quicken the process will be in demand, eventually.

However, ICE cannot escape a shrinking mortgage market. Mortgage loan originations are expected to drop by 35.5 per cent this year, according to the Mortgage Bankers Association. Shares in non-bank mortgage lenders — including Quicken Loan owner Rocket Company and UWN — have both shed about 39 per cent of their value so far this year.

Revenue from ICE’s mortgage technology unit — about a fifth of group total last year — fell 13 per cent during the first quarter.

ICE will pay up to expand. Its $85 cash and share offer represents a 33 per cent premium to Black Knight’s trading price before the deal was announced. The bid values Black Knight at around 20 times 2022 adjusted ebitda. It paid around 23 times for Ellie Mae.

Even so, taxed and capitalised, annual cost savings of $200mn tot up to perhaps $1.4bn, small compared to the $3.3bn in premium it is paying. To justify the deal, ICE will need to find ways to monetise the huge trove of data it has on borrowers. Otherwise, ICE will have mortgaged some of its future earnings on the outlook of the US housing market.

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hello, I am Flora Khan and i work journalist in allnewshouse website i work in other sites like forbes and washington post with 5 years in experience.

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