ICE Age
ICE is by far the dominant player in mortgage tech. Frustrated clients feel there’s no way out.
Roy George might be the bravest man in mortgage. He openly criticizes ICE Mortgage Technology, the industry’s 800-pound gorilla that touches close to 3 in 4 mortgages. Very few others will go there.
“I’ll sit at a conference and have a private conversation and everybody has negative things to say [about ICE and Encompass,]” George, president of MOR Lending, tells The Scoop. “A week later, they’re at the ICE conference jumping up & down about whatever’s coming next that never really comes to fruition in the way that they pitch it.”
The Scoop contacted a LOT of people for this story, and most declined to speak on the record, citing either NDAs or fear of reprisal. But grumblings about ICE are standard fare at exhibit halls & in Whatsapp groups.
“It’s almost like a love-hate relationship, because they were trying to be this all-in-one,” said one ex-Ellie Mae employee. “Then they realized people don’t really want an all-in-one. So they started with the strategy of, ‘We can make up for it by charging all of our integration partners rev share.’”
What’s On Tap – Aug. 29
ICE (Cont.)
How things shook out post-pandemic is a particularly sore subject for lending execs. Unlike other partners, ICE refused to cut them a break, they said.
“Imagine being put out of business because of your vendor,” said one. “It left a really bad taste in a lot of mouths.”
Added another: “They don’t care about your hard times. You’re getting a price increase no matter what. They know people are stuck between a rock and a hard place because changing an LOS is a ridiculously hard endeavor.” 🪨 ⛰️
ICE, which was largely bolted together by parent Intercontinental Exchange (also owner of the NYSE) through the multibillion-dollar acquisitions of MERS, Ellie Mae and Black Knight, declined to comment for this story.
Products it’s bought or developed, such as Consumer Connect, Encompass Web, Surefire and Ernst, often don’t live up to the promises made, critics say. They sometimes directly compete w/ vendors on their platform, who pay a vig of 20% (or more) in top-line revenue for the privilege of being on Encompass. ICE pushes lenders to buy products formerly owned by Black Knight (acquired for $11.9B), sources said, & will muscle out smaller vendors by offering closed loan pricing.
“Customers will tell me, ‘Look, we love your shit but we’re getting killed on our minimums from ICE. The only way for us to get them down is to sign w/ them and use DDA,’” said one solutions co. exec, referring to ICE Data & Document Automation. “I know 3 different lenders who are paying to use DDA who aren’t using DDA, or they have the minimal seats, just so they can get their LOS pricing down. But then you look at the ICE earnings call and what’s it going to show? Oh yeah, we just signed 3 new lenders to DDA.”
As ICE’s empire has grown, customer service has taken a hit, some vendors said.
“[Sig] cared about the industry and he cared about people,” one said, re. to Ellie Mae founder Sig Anderman. “And now that it’s ICE… I mean, they own the New York Stock Exchange. They bought enough mortgage companies, but over the last couple years they’ve been getting rid of all of their mortgage-specific people.”
“They don’t pick up their calls or support their clients,” a different person said. “They’re selling things that aren’t fully ready for market and it results in the lender having lost time, money and resources.”
Larry Bailey, who runs consultancy firm Mortgage Workflow Partners, dismissed much of the criticism. Support is actually much faster and more robust than it was under Ellie Mae, he said, though smaller clients lost dedicated account reps and now use call centers. He also defended ICE’s revenue model, noting that all SaaS providers charge a fee for use, & believes it’s fair game for ICE to also challenge vendors on their platform w/ acquired products. (Other LOSs often locked vendors out entirely when they had a competing product.)
“Any time a company buys a piece of technology, even if they do complete due diligence, you never really know how the code is going to mesh,” Bailey said. “It’s a little unfair to characterize expectations w/ realities in software and then people are upset that the output doesn’t line up to the original vision.”
On the delayed transition from Hamster Dance-era SDK code to API, Bailey said that for the vast majority of companies w/ a “real vested interest” in the deadline, the APIs that ICE has published simply can’t do the important things that the SDK can. “There’s lots of nonsense that lenders and vendors have done w/ the SDK to bastardize the desktop experience, to break the user interface on purpose,” he said. “That’s all bad for Encompass, which has led to a lot of complaining.”
Even critics give credit to ICE for investing billions to bring mortgage into the modern era by connecting origination and servicing. And this is still America — businesses exist to make money.
Besides, there are other LOS options out there, such as DMT’s Empower, Vesta (which picked up Pennymac as a client) and recently-acquired Meridian Link.
But they remain minnows compared to ICE because their offerings aren’t as robust.
Leaving Encompass is pricey. It has to be perfectly synced w/ contract expirations and many lenders would need to spend $$$ on consultants, training & reworking vendor contracts.
“It’s a difficult space to play in,” said MOR Lending’s George. “The monopoly is the monopoly.”
Rocket’s Age of Empires
Rocket CEO Varun Krishna is betting on refi glory w/ Mr. Cooper as he builds the top of funnel
Rocket Companies will soon lay claim to being the biggest, baddest mortgage company since Countrywide. After the acquisition of Mr. Cooper closes in Q4, Rocket will service roughly 1 in 6 mortgages, including a whopping 13% of the GSE servicing market (it’s closer to 20% w/ subservicing). FHFA has put a 20% cap on GSE servicing, but it’s unclear if that includes subservicing. In other words, there might be even more airspace for Rocket.
Might be useful to dive into the history books. Here are the 5 biggest non-Rocket M&A deals of the modern era.
1) Countrywide was bought by BofA for $4.1B in stock in January ‘08, making it the nation’s largest mortgage lender & servicer at the time. You know the story here—BofA lost more than $40B in the deal on legal fees & real estate losses alone (This book’s worth checking out.)
2) Washington Mutual’s banking operations were bought by Chase for $1.9B after WaMu was seized by the FDIC. JPM ended up paying the FDIC $645M to settle claims & took a $31B write-down on the inherited mortgages.
3) Intercontinental Exchange bought Black Knight in 2022 for $11.9B, linking its servicing platform with ICE’s Encompass LOS. The deal passed antitrust scrutiny & now ICE is arguably the most important mortgage company not named Fannie or Freddie. It’s also profitable now.
4) Intercontinental Exchange bought Ellie Mae in 2020 for $11B (they acquired MERS in 2016), which gave them Encompass. Legacy tech but really the key in ICE controlling the ecosystem.
5) NewRez bought Caliber in 2021 for $1.675B. It didn’t take too long for Caliber’s retail to get blown up. That was a servicing play.
The Rocket-Mr. Cooper transaction is being billed as the market-shattering deal that could reshape the industry. Rocket is already the best in the country at refis and has top-of-funnel potential with Redfin ($1.75B – 2025) and TrueBill ($1.28B – 2020). And they’ll have an extraordinary servicing book.
This Mr. Cooper deal is expensive and contains some risks. They’ll have a nice hedge in the form of consistent servicing revenue and a silly number of refi opps (21% of Mr. Cooper’s $1.5T book has coupons north of 6%) but…
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Rocket is paying a 35% premium on the stock. Ouch!
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If we hit a real downturn, that could be tough on image-conscious Rocket. It doesn’t look great to have stirring American Dream TV ads as you’re foreclosing on families in Central Florida. Mr. Cooper also has some dings from regulators (there’s a reason it’s no longer called Nationstar) and a data-breach lawsuit that Rocket is inheriting.
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That 20% cap could muddle the plan to bring servicing in-house on broker biz.
The upside here is just too big to turn down for Rocket, warts and all.
Quickies
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Speaking of ICE, sources tell The Scoop that the big deal they inked with Fifth Third Bank is worth ≈ $90M. ICE also took a stake in vendor Snapflood 🌊
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USMI’s encouraging mortgage insurers to adopt VS4.0. Behind the scenes, Pulte is still squabbling with FICO, which recently added lobbyist John McMickle. FICO spent a record $460K on lobbying in Q2. VS also spent $160K in Q2.
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One name that comes up often in mortgage tech M&A rumors is Constellation Software’s Perseus Group, owner of Optimal Blue and DMT. They’re on the hunt.
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Kelli Himebaugh at Lendingpad just landed a good-sized client —> Kind Lending. Sources said Kind was previously a big account at Blue Sage…
ARMchair Critics
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