7.3 Federal Financing Regulations (RESPA, TILA, ECOA, TRID)
Key Takeaways
- RESPA governs settlement-service disclosures and prohibits kickbacks and unearned referral fees between settlement providers.
- TILA (Truth in Lending Act) requires disclosure of the cost of credit, including the APR and finance charge, and regulates advertising of trigger terms.
- ECOA (Equal Credit Opportunity Act) bars credit discrimination based on race, color, religion, national origin, sex, marital status, age, or public-assistance income.
- TRID combines RESPA and TILA disclosures into the Loan Estimate (within 3 business days of application) and the Closing Disclosure (at least 3 business days before closing).
- Regulation Z implements TILA and provides a 3-business-day right of rescission on certain refinances and home-equity loans, but not on a purchase loan.
RESPA: Real Estate Settlement Procedures Act
RESPA regulates the settlement (closing) process on most federally related residential mortgages. Its two exam-critical functions are disclosure and anti-kickback enforcement.
- Disclosure: Borrowers must receive information about settlement costs and the services of the providers involved.
- Anti-kickback (Section 8): It is illegal to give or accept a fee, kickback, or anything of value for the referral of settlement business, and to charge fees for services not actually performed (unearned fees).
RESPA also limits how much a lender can require a borrower to hold in an escrow (impound) account for taxes and insurance. A real-life trap for agents: accepting a gift card from a title company in exchange for steering clients is a RESPA Section 8 violation.
TILA: Truth in Lending Act
TILA, implemented by Regulation Z, ensures borrowers understand the true cost of credit. Lenders must disclose the finance charge (the total dollar cost of credit) and the annual percentage rate (APR), which expresses that cost as a yearly rate including most fees and points.
Key distinction the exam loves: the interest rate is the cost of the loan principal alone, while the APR is higher because it folds in points, certain fees, and mortgage insurance. If a borrower compares two loans, the APR is the apples-to-apples figure.
TILA also regulates advertising. If an ad states a specific "trigger term" such as the down payment, monthly payment amount, number of payments, or finance charge, it must also disclose the APR and other key terms. Vague language like "low monthly payments" is not a trigger term.
Which figure represents the true annual cost of credit, including points and most fees, and is used to compare loans?
ECOA: Equal Credit Opportunity Act
ECOA prohibits discrimination in credit transactions. A lender may not deny credit or set different terms based on a protected class. The ECOA protected classes are broader than some fair-housing lists, so memorize them:
- Race
- Color
- Religion
- National origin
- Sex (including sexual orientation and gender identity under current guidance)
- Marital status
- Age (provided the applicant can legally contract)
- Receipt of public-assistance income
Note two ECOA-specific protections not found in the federal Fair Housing Act: marital status and age. A lender cannot, for example, refuse to count reliable public-assistance income or treat an older qualified applicant differently. ECOA also requires lenders to provide a written notice of action taken and, on denial, the specific reasons or how to obtain them, so applicants understand why credit was refused. A real estate licensee should never discourage a buyer from applying based on a protected characteristic, as steering can implicate both ECOA and fair-housing law.
TRID: The Integrated Disclosures
TRID stands for the TILA-RESPA Integrated Disclosure rule, which merged the older disclosures into two consumer-friendly forms.
- Loan Estimate (LE): Provided within three business days of a completed loan application. It lists estimated rate, payments, closing costs, and APR.
- Closing Disclosure (CD): Provided at least three business days before consummation (closing). It shows the final, actual terms and costs.
The three-day CD waiting period exists so the borrower can compare final terms against the original estimate. Certain changes, such as an increase in the APR beyond tolerance, a change to a prepayment penalty, or a switch in loan product, reset the three-day clock.
Disclosure Timeline at a Glance
Table: TRID Disclosure Timing
| Form | Purpose | Timing Rule |
|---|---|---|
| Loan Estimate | Estimated terms and costs | Within 3 business days of application |
| Closing Disclosure | Final, actual terms and costs | At least 3 business days before closing |
| Right of Rescission | Cancel certain refinances / HELOCs | 3 business days after signing |
The right of rescission under Regulation Z gives the borrower three business days to cancel on a refinance or home-equity loan against a primary residence. It does not apply to a purchase-money loan, because the borrower needs the funds to buy the home. This is a frequent trap: rescission is for refinances, not purchases.
Under TRID, when must the Closing Disclosure be provided to the borrower?
Regulation Z, Triggering Terms, and HMDA
TILA is implemented by Regulation Z, which governs consumer-credit disclosure and advertising. Mentioning a specific triggering term in an ad (a down-payment amount, a payment figure, the number of payments, or a finance charge) forces disclosure of the full credit terms, including the APR.
| Federal law | Core purpose |
|---|---|
| RESPA | Bars kickbacks; requires settlement disclosures; limits escrow |
| TILA / Reg Z | True cost of credit; APR; advertising triggers |
| ECOA | Prohibits credit discrimination by protected class |
| TRID | Combines TILA + RESPA into Loan Estimate and Closing Disclosure |
| HMDA | Requires lenders to report mortgage data to detect discrimination |
Exam trap: Advertising "$0 down" triggers full Regulation Z disclosure; vague phrases like "low monthly payments" do not trigger it.
The Three-Day Closing-Disclosure Rule
Under TRID, the borrower must receive the Closing Disclosure at least three business days before consummation, giving time to compare it to the earlier Loan Estimate. Certain changes (a higher APR beyond tolerance, a new prepayment penalty, or a changed loan product) restart the three-day clock.
Exam trap: Most fee changes do not reset the clock, only an APR jump beyond tolerance, adding a prepayment penalty, or a loan-product change triggers a new three-day waiting period.
RESPA Section 8 and the Loan Estimate Window
RESPA Section 8 flatly prohibits kickbacks, referral fees, and unearned fees among settlement-service providers, an agent may not accept a payment merely for steering business to a lender or title company. The lender must deliver the Loan Estimate within three business days of a completed application.
Exam trap: A referral fee for sending a buyer to a particular lender or title company violates RESPA Section 8, even if everyone agrees to it.