You’re here because you may have heard that insurance tracking fees can be part of RESPA settlement services, or you may possibly already be utilizing this strategy. So, is it allowed? The short answer is: Yes!
The key is ensuring it’s disclosed at closing as a Settlement Service.
We believe that insurance tracking is a settlement service when services are procured at loan closing, regardless of whether the lender is passing the charge onto the borrower or absorbing the cost.
Once a fee (origination-based insurance tracking) becomes a part of the original settlement agreement, the provider (the insurance tracker) becomes a settlement service provider.
This means they are bound to other RESPA sections regarding regulated mortgage loans, such as RESPA Section 8(a) which states:
"No person shall give, and no person shall accept any fee, kickback, or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person."
Definition of Settlement Service under RESPA:
Settlement service means any service provided in connection with a prospective or actual settlement, including, but not limited to, any one or more of the following:
(11) Provision of services involving hazard, flood, or other casualty insurance or homeowner's warranties
Because insurance tracking is a service that involves hazard, flood, and other casualty insurance, it falls under the definition of “settlement service” per RESPA.
IMPORTANT: The TILA-RESPA Integrated Disclosure FAQs state that lenders must disclose settlement services and their costs at loan closing, even if the lender intends to absorb the cost.
If a lender chooses to absorb the charge, then they would need to disclose the fee and insert a credit in the “Paid by Others” field.
Not disclosing the fee would be a violation.
We hope this has answered your questions related to whether or not insurance tracking fees can be part of RESPA Settlement Services.
Do you have any more questions? We’re always happy to answer them! Reach out to us any time for more detail.