7.3 Federal Financing Regulations (RESPA, TILA, ECOA, TRID)

RESPA — Real Estate Settlement Procedures Act

RESPA applies to federally related mortgage loans on 1-4 family residential property. Its goals are transparency in settlement costs and elimination of abusive practices.

Key RESPA rules:

• No kickbacks or unearned fees — you may not pay or receive a fee for referring settlement business when no actual service is performed. A referral fee for sending a client to a particular title company is illegal.
• No required use of an affiliated provider, with limited exceptions; affiliated business arrangements must be disclosed.
• Limits the amount a lender can require in an escrow (impound) account for taxes and insurance.

Trap: splitting a fee for no work is the violation; paying for an actual service rendered is allowed.

TILA — Truth in Lending Act (Regulation Z)

TILA requires lenders to disclose the true cost of credit so borrowers can compare loans.

• APR (Annual Percentage Rate) — the cost of credit as a yearly rate, including interest plus certain finance charges and fees. APR is normally higher than the note (interest) rate because it folds in costs.
• Finance charge — the total dollar cost of credit over the loan term.
• Right of rescission — on certain refinances/home-equity loans on a primary residence, the borrower gets 3 business days to cancel. (Does not apply to a purchase-money loan on a new home.)

Trigger terms: if an ad states a specific term such as the down payment amount, monthly payment, number of payments, or APR detail, it must then disclose all required terms. Saying only "low down payment, call today" is not a trigger term.

ECOA — Equal Credit Opportunity Act

ECOA prohibits discrimination in any aspect of a credit transaction based on:

• Race or color
• Religion
• National origin
• Sex (including sexual orientation/gender identity per regulatory interpretation)
• Marital status
• Age (provided the applicant can legally contract)
• Receipt of income from public assistance

Lenders must notify applicants of action taken on an application generally within 30 days and give reasons for denial.

Compare to fair housing: the federal Fair Housing Act protects 7 classes (race, color, religion, national origin, sex, familial status, disability). ECOA's list overlaps but adds marital status, age, and public-assistance income — a frequent exam distinction.

TRID — the integrated disclosures

TRID (TILA-RESPA Integrated Disclosure rule) combined four old forms into two and set strict timing.

Mnemonic: "3 days to get the estimate, 3 days to read before you close." A valid change (changed APR beyond tolerance, loan product change, or added prepayment penalty) restarts the 3-day CD waiting period. Minor changes do not. Trap: the 3-day CD window counts business days and is designed to prevent surprise closing-table fee changes.

Application triggers and licensee duties

Under TRID, an application is considered complete once the lender has six pieces of information: name, income, Social Security number, property address, estimated property value, and loan amount. That moment starts the 3-business-day Loan Estimate clock, so licensees should help buyers submit complete applications promptly.

Fee tolerances on the LE protect borrowers from bait-and-switch quotes:

• Zero tolerance — lender/origination charges and fees for services the borrower cannot shop for may not increase at all.
• 10% tolerance — certain third-party services the borrower can shop for (from the lender's list) may rise up to 10% in aggregate.
• No tolerance limit — items genuinely outside the lender's control, like prepaid interest or items the borrower shopped independently.

Trap: the agent never delivers these federal disclosures — the lender does — but the agent must know the timelines to keep a transaction on schedule.

Putting the four laws together

It helps to file each statute under what it primarily controls:

A tricky exam item gives a fact pattern and asks which law applies. Anchor on the verb: a referral fee problem is RESPA; a misleading ad with a payment amount is TILA; a denial because of marital status is ECOA; a late or surprise closing form is TRID. Most violations carry civil penalties and potential CFPB enforcement, and a few (like willful RESPA kickbacks) can be criminal.

Worked Timing Problems and How These Laws Reach a California Deal

The federal statutes apply to virtually every California residential loan, and the DRE tests the timelines numerically.

A Worked TRID Timeline

A buyer submits a complete loan application (the six items) on Monday, June 1. The lender must deliver the Loan Estimate within three business days — by Thursday, June 4. The closing is set for June 20, so the Closing Disclosure must be received at least three business days before — by June 17.

Now suppose on June 16 the lender raises the APR beyond tolerance: that is a changed-circumstance that restarts the three-business-day CD clock, pushing the earliest closing to about June 19-22. A minor fee correction would not restart the clock. The exam rewards candidates who know which changes restart the waiting period.

A Worked Rescission Problem

A homeowner refinances the loan on her primary residence and signs on Wednesday. Under TILA's right of rescission she has three business days (excluding Sunday and federal holidays) to cancel — generally through Saturday. Critically, this rescission right applies to refinances and home-equity loans, not to the purchase-money loan on a newly bought home. A question giving a purchase loan and asking about a three-day cancellation right is testing whether you know rescission does not apply to purchase money.

Mortgage Loan Originator Licensing in California

A California salesperson who negotiates or arranges residential mortgage loans for compensation must also hold a Mortgage Loan Originator (MLO) endorsement under the federal SAFE Act, registered through the NMLS, in addition to the DRE license. Simply referring a buyer to a lender does not require it; originating the loan does.

Trap: Match the law to the verb. A referral fee for no service is RESPA; a misleading ad with a payment figure is TILA; a denial based on marital status or public assistance is ECOA; a late or restarted closing form is TRID. The agent never delivers these disclosures — the lender does — but must track the dates.