7.3 Federal Financing Regulations (RESPA, TILA, ECOA, TRID)
Key Takeaways
- TILA (Reg Z) requires disclosure of APR and finance charges; trigger terms in ads force full-term disclosure, and a 3-day rescission applies to refinances—not purchase loans.
- RESPA covers federally related 1-4 family mortgages, bans Section 8 referral kickbacks, requires affiliated-business disclosures, and limits escrow amounts.
- ECOA bans credit discrimination and adds marital status, age, and public-assistance income to the protected classes beyond the Fair Housing Act list.
- TRID merged disclosures into the Loan Estimate (within 3 business days of application) and the Closing Disclosure (at least 3 business days before closing).
- The CFPB enforces these federal lending laws; major changes to loan terms restart the TRID 3-day clock before consummation.
The Four Federal Acts You Must Know
Federal law governs disclosure and fairness in residential lending. Four acronyms dominate the exam:
| Act | Purpose | Key tool |
|---|---|---|
| TILA (Truth in Lending Act) | Disclose true cost of credit | APR, Reg Z |
| RESPA | Disclose settlement costs; ban kickbacks | Closing cost rules |
| ECOA (Equal Credit Opportunity Act) | Ban credit discrimination | Fair lending |
| TRID | Combine TILA + RESPA disclosures | Loan Estimate, Closing Disclosure |
Memorize what each protects. TILA is about cost transparency, RESPA is about settlement-cost transparency and anti-kickback, ECOA is about non-discrimination in credit, and TRID is the modern integrated disclosure rule that ties TILA and RESPA together.
TILA and Regulation Z
The Truth in Lending Act, implemented by Regulation Z, requires lenders to disclose the Annual Percentage Rate (APR) and total finance charge so borrowers can compare loans on an apples-to-apples basis. The APR includes interest plus certain financing fees, so it is usually higher than the nominal note rate.
TILA also governs advertising: if an ad states one specific credit term (a 'trigger term' such as the down payment amount, monthly payment, or number of payments), the ad must then disclose all material terms including APR. TILA also grants a 3-day right of rescission on certain refinances and home-equity loans on a primary residence — but not on a purchase-money mortgage.
A lender advertises 'Only $999 down!' for a home loan. Under TILA's Regulation Z, what must the advertisement also include?
RESPA — Settlement Costs and Kickbacks
The Real Estate Settlement Procedures Act applies to federally related residential mortgage loans (1-4 family). Two big rules:
- Anti-kickback (Section 8): It is illegal to pay or receive a fee, kickback, or thing of value for the referral of settlement-service business. Paying an agent for sending buyers to a particular title company is a RESPA violation.
- Affiliated Business Arrangement (ABA) disclosure: If a broker refers business to an affiliated company in which it has an ownership interest, that relationship must be disclosed, and the consumer must be free to shop elsewhere.
RESPA also limits the amount a lender can require a borrower to keep in an escrow/impound account for taxes and insurance.
ECOA — Equal Credit Opportunity Act
The Equal Credit Opportunity Act prohibits discrimination in any aspect of a credit transaction based on:
- Race or color
- Religion
- National origin
- Sex
- Marital status
- Age (provided the applicant can contract)
- Receipt of public assistance income
Trap: ECOA's protected classes are not identical to the Fair Housing Act's. ECOA adds marital status, age, and public-assistance income — categories aimed specifically at credit fairness. A lender cannot, for example, discount a wife's income simply because she is married or refuse to count alimony or public-assistance income.
TRID — The Integrated Disclosures
TRID (TILA-RESPA Integrated Disclosure rule) replaced four older forms with two:
| Form | Replaces | Timing |
|---|---|---|
| Loan Estimate (LE) | Good Faith Estimate + early TIL | Within 3 business days of application |
| Closing Disclosure (CD) | HUD-1 + final TIL | At least 3 business days before closing |
The 3-day rule is heavily tested: the borrower must receive the Closing Disclosure at least three business days before consummation. Certain changes — a higher APR beyond tolerance, adding a prepayment penalty, or switching loan products — restart the 3-day clock. Minor changes do not.
Under TRID, how far in advance of closing (consummation) must the borrower receive the Closing Disclosure?
Putting It Together
Think of the borrower's timeline: at application, TRID requires the Loan Estimate within 3 business days (built on TILA + RESPA data). During underwriting, ECOA ensures the decision is non-discriminatory and the applicant gets notice of action taken. Before closing, the Closing Disclosure arrives at least 3 business days early. Throughout, RESPA bans referral kickbacks and TILA ensures the APR and finance charges are clearly stated. These acts are enforced primarily by the Consumer Financial Protection Bureau (CFPB).
RESPA Coverage and Tolerances
RESPA applies to federally related loans on 1-4 unit residential property — essentially any loan made by a lender whose deposits are federally insured or whose loans are sold to Fannie/Freddie. It does not cover all-cash purchases or business-purpose loans.
TRID also imposes tolerance rules on the Loan Estimate. Some fees (the lender's own charges, points, transfer taxes) carry a zero tolerance — they cannot increase at closing without a valid changed circumstance. Other third-party fees the borrower could shop for fall under a 10% aggregate tolerance. If a charge exceeds its tolerance, the lender must cure by refunding the borrower the excess.
ECOA Notices and Appraisal Rights
Beyond banning discrimination, ECOA gives applicants procedural rights. A lender must notify the applicant of action taken on a completed application — generally within 30 days — and, if credit is denied, provide the specific reasons or how to obtain them (an adverse action notice).
ECOA also requires lenders to give the applicant a copy of any appraisal or written valuation used in a first-lien dwelling loan, promptly upon completion. These notice and appraisal-copy duties are frequently tested alongside the protected classes, so remember ECOA is both an anti-discrimination and a disclosure statute.