The proposed merger between Intercontinental exchange Inc. and Black Knight may be subject to scrutiny by the justice department and the Consumer Financial Protection Bureau on the antitrust concerns raised by the Community Association of Home Lenders.

In its Wednesday letter to the DOJ, the CHLA claimed that the small and mid-sized independent mortgage banks it represents would be “particularly vulnerable” to market concentration – such as the large conglomerate resulting from an ICE/Black Knight merger. – in mortgage services. Unlike large lenders, who often have their own proprietary systems, it is often not financially possible for small businesses to develop their own software.

A dominant service provider would diminish the ability of small businesses to negotiate the rates and terms of the services they provide, the CHLA wrote. Less competition could also reduce the pressure to innovate and develop new products and services, and a company holding significant amounts of consumer data raises a “myriad” of concerns, the letter says.

Intercontinental Exchange and Black Knight did not respond to requests for comment.

Mortgage underwriting has shifted in recent decades from a largely manual process – calculations relying on data points such as lease payments – to one relying on software, credit scoring and related services. . Service providers and lenders that can deploy efficient and sophisticated service, origination and even regulatory compliance systems are more competitive.

The gains in efficiency and scale are offset by the inherent vulnerabilities and limitations of using third-party data and systems. A stark example is the inability of credit scoring models, now ubiquitous in mortgage underwriting and credit decisions, to assess a large portion of the population, especially those with poor credit histories.

A limitation of mortgage servicing software is whether they are compatible with other systems. The CHLA raised concerns that the ICE/Black Knight software would not be compatible with that of its competitors, which would limit the ability of lenders to replace software and service components.

These services and systems are also used for regulation, pricing, training and other critical functions — not just loan origination and servicing, the CHLA wrote. Any shortcomings in these necessary functions could pose a serious problem, giving the provider of these services serious leverage to charge “significant and unwarranted price increases upon renewal,” according to the CHLA.

“A small lender might have no practical choice but to accept the large and unwarranted cost increases,” the CHLA wrote, which would be passed on to consumers. The CHLA also said independent mortgage banks now originate more than 60% of all mortgages and more than 90% of FHA loans, which disproportionately serve minority borrowers.

Intercontinental Exchange, the software and data parent company of ICE Mortgage Technology, will acquire Black Knight. The companies announced the $13.1 billion mega-deal in May.

In addition to the DOJ, the CHLA sent its letter to the Consumer Financial Protection Bureau, the Federal Trade Commissionthe Federal Housing Administration and the Federal Housing Finance Agency. The CHLA could find a sympathetic ear in the person of Rohit Chopra, the director of the CFPB.

Chopra has in the past raised antitrust concerns about big tech companies, through dissenting opinions while at the FTC.

In 2019, speaking after the House Judiciary Committee requested documents from Apple, Amazon, Google and the company formerly known as FacebookChopra told CNBC, “We actually have to take a hard look at whether these giants are killing innovation and competition.”