7.3 Federal Financing Regulations (RESPA, TILA, ECOA, TRID)
Key Takeaways
- RESPA governs settlement-service disclosures and prohibits kickbacks and unearned referral fees on federally related mortgage loans.
- TILA requires disclosure of the true cost of credit, including the APR and finance charge, and is implemented by Regulation Z.
- TRID merged RESPA and TILA disclosures into the Loan Estimate (within 3 business days of application) and Closing Disclosure (at least 3 business days before consummation).
- ECOA prohibits credit discrimination based on race, color, religion, national origin, sex, marital status, age, or receipt of public assistance.
- TILA gives a 3-business-day right of rescission on certain refinances/home-equity loans on a principal residence, but not on a purchase-money loan.
RESPA — settlement transparency and anti-kickback
The Real Estate Settlement Procedures Act (RESPA) applies to federally related mortgage loans (most residential 1-4 family loans). Its goals are to give consumers clear settlement-cost information and to eliminate abusive practices that inflate those costs.
RESPA's most tested rule is Section 8: no kickbacks or unearned fees. A licensee cannot accept a thing of value for referring a buyer to a particular title company, lender, inspector, or insurer unless a real service was actually performed. Affiliated business arrangements are allowed only with written disclosure, no required use, and only normal ownership returns. RESPA also limits the size of escrow/impound account cushions a lender may collect.
TILA and Regulation Z — the true cost of credit
The Truth in Lending Act (TILA), implemented by the Federal Reserve's Regulation Z, requires lenders to disclose the real cost of borrowing so consumers can compare loans. The two flagship disclosures are the finance charge (total dollar cost of credit) and the annual percentage rate (APR) — the cost of credit expressed as a yearly rate that folds in interest plus most loan fees. Because APR includes fees, it is usually higher than the note's stated interest rate; a low rate with high fees can have a surprisingly high APR.
TILA also controls advertising. If an ad states a specific credit term ('trigger term') such as down payment, monthly payment, term, or interest rate, it must also disclose the APR and other required terms. Vague ads ('low rates available') avoid triggering full disclosure.
A worked APR-vs-rate comparison
Because APR folds most loan fees into a yearly figure, two loans with the same note rate can carry different APRs. Consider a $200,000 loan at a 6.000% note rate. Lender A charges $1,000 in fees; Lender B charges $6,000. Both quote 6.000% interest, but Lender B's higher fees push its APR meaningfully above Lender A's — so the lower-APR loan (A) is cheaper despite the identical note rate. TILA exists precisely so a borrower can spot that difference.
| Disclosure | Statute | Timing |
|---|---|---|
| Loan Estimate | TILA-RESPA (TRID) | Within 3 business days of application |
| Closing Disclosure | TILA-RESPA (TRID) | At least 3 business days before closing |
| Right of rescission | TILA / Reg Z | Midnight of the 3rd business day (refi/HELOC only) |
| Adverse-action notice | ECOA / Reg B | Within statutory timeframe after decision |
Trap: The 3-day right of rescission never applies to a purchase-money mortgage — only to refinances and home-equity loans on a principal residence. Candidates routinely (and wrongly) apply rescission to a home purchase.
A real estate agent receives $200 from a title company each time the agent steers a buyer to that title company, with no service performed. Which law does this violate?
TRID — combining the disclosures
TRID (TILA-RESPA Integrated Disclosure rule), enforced by the CFPB, merged the old GFE/HUD-1 and TIL forms into two consumer documents. Memorize the timing, which is heavily tested:
| Document | What it does | Timing rule |
|---|---|---|
| Loan Estimate (LE) | Estimates rate, payment, closing costs | Delivered within 3 business days of loan application |
| Closing Disclosure (CD) | Final terms and actual closing costs | Received at least 3 business days before consummation (closing) |
The 3-day CD waiting period gives the borrower time to compare final terms against the Loan Estimate. Certain changes — an APR increase beyond tolerance, adding a prepayment penalty, or a change in loan product — restart the 3-day clock. Minor cost changes generally do not.
ECOA — equal access to credit
The Equal Credit Opportunity Act (ECOA), implemented by Regulation B, prohibits discrimination in any aspect of a credit transaction based on race, color, religion, national origin, sex, marital status, age (provided the applicant can contract), or because all or part of income comes from a public assistance program or the applicant exercised a consumer-credit right.
Distinguish ECOA from fair housing: ECOA covers the credit/lending decision, while the Fair Housing Act covers the housing transaction (sale, rental, terms). Both can apply to a mortgage. ECOA also requires lenders to notify applicants of action taken (approval, counteroffer, or adverse action) within set timeframes and to state specific reasons for denial.
Right of rescission and ability to repay
Under TILA, certain loans secured by the borrower's principal residence — primarily refinances and home-equity loans — carry a 3-business-day right of rescission, letting the borrower cancel by midnight of the third business day after signing. This right does not apply to a loan used to purchase the home (a purchase-money mortgage) — a classic exam trap.
The post-2008 Ability-to-Repay/Qualified Mortgage rules also require lenders to make a good-faith determination that the borrower can repay, using the 'eight underwriting factors' (income, assets, debts, etc.). A Qualified Mortgage avoids risky features (no negative amortization, no interest-only, limited points/fees) and gives the lender legal protection.
How the four laws fit together
Do not treat these statutes as interchangeable; each owns a different stage of the loan and the exam tests which one applies to a fact pattern:
- ECOA governs the decision to extend credit and bars discrimination in who gets a loan and on what terms.
- TILA/Regulation Z governs disclosure of cost (APR, finance charge) and advertising, plus the right of rescission on qualifying loans.
- RESPA governs settlement services and bans kickbacks and unearned fees.
- TRID is the delivery mechanism that combines RESPA and TILA disclosures into the Loan Estimate and Closing Disclosure with strict timing.
A single mortgage can implicate all four. Enforcement now largely sits with the Consumer Financial Protection Bureau (CFPB). A reliable test strategy: if the question is about who qualifies, think ECOA; about what it costs / when forms arrive, think TILA/TRID; about referral fees or escrow, think RESPA.
A homeowner refinances the mortgage on their primary residence. Under TILA, what right does the borrower have that would NOT apply to a purchase-money loan?