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

RESPA - Real Estate Settlement Procedures Act

RESPA applies to federally related mortgage loans on one- to four-family residential property. It requires lenders to disclose settlement costs and bars practices that inflate those costs.

Key RESPA prohibitions:

• No kickbacks or referral fees for the referral of settlement-service business.
• No unearned fees - a fee must reflect actual work performed.
• No required use of an affiliated provider (with limited exceptions for properly disclosed affiliated business arrangements).

RESPA is enforced by the Consumer Financial Protection Bureau (CFPB). A licensee who accepts a thank-you payment for steering a buyer to a particular title company violates RESPA.

TILA - Truth in Lending Act

TILA, implemented through Regulation Z, requires lenders to disclose the true cost of borrowing so consumers can compare offers. The headline figure is the annual percentage rate (APR), which folds finance charges into a single percentage - so the APR is normally higher than the stated note rate.

TILA also governs credit advertising. If an ad states one specific credit term (a trigger term such as the down payment amount, payment amount, or number of payments), it must also disclose the other key terms, including the APR. TILA provides a three-day right of rescission on most refinances and home-equity loans secured by a principal residence - but not on a purchase-money loan.

ECOA - Equal Credit Opportunity Act

ECOA 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 income derives from a public-assistance program.

Lenders may evaluate genuine creditworthiness factors - income, debts, credit history - but may not deny credit for a prohibited reason. Note the overlap and difference with the Fair Housing Act: ECOA covers credit broadly and adds age and marital status, while Fair Housing covers housing and adds familial status and disability.

TRID - The Integrated Disclosures

TRID (TILA-RESPA Integrated Disclosure) merged the four former forms into two. The old Good Faith Estimate (GFE) and initial TILA disclosure became the Loan Estimate (LE); the old HUD-1 and final TILA disclosure became the Closing Disclosure (CD).

Table: TRID Timing

The three-day CD waiting period gives borrowers time to compare final terms against the LE. Certain changes (such as an APR increase beyond tolerance) restart the three-day clock. TRID applies to most closed-end consumer mortgages but not to home-equity lines or reverse mortgages.

Counting the Business Days

TRID timing questions hinge on which days count. For the three-business-day rules, business days generally mean every day except Sundays and federal holidays, while the receipt of a mailed disclosure is presumed three business days after it is sent.

Worked Example

A lender hands the borrower the Closing Disclosure in person on Monday. Counting forward, the earliest the loan may close (consummate) is Thursday - Tuesday, Wednesday, and Thursday give three full business days after Monday. If a holiday fell on Wednesday, closing would slip to Friday.

Now suppose, two days before closing, the lender switches the borrower to a different loan product that raises the APR beyond the tolerance. That triggers a new three-business-day clock and a revised CD, delaying closing.

Exam Trap: Only three changes reset the CD clock: an APR increase beyond tolerance, a change in the loan product, or the addition of a prepayment penalty. Routine fee adjustments do not reset it.

Putting the Four Laws Together

The national exam loves to ask which law a scenario violates. Match the trigger word to the law.

Table: Which Law Governs?

A single transaction can implicate several at once: a refinance generates RESPA cost disclosures, a TILA APR figure, a TRID Loan Estimate, and ECOA fair-credit protection simultaneously. When a question describes steering business for a fee, choose RESPA; when it describes cost-of-credit advertising or the right to cancel, choose TILA; when it describes discrimination in lending, choose ECOA.

Two more enforcement points the exam expects. The CFPB is the primary federal enforcer for RESPA, TILA, ECOA, and TRID, having absorbed authority from earlier agencies. A referral fee paid to an unlicensed person for sending business can violate both RESPA and state license law at once - the licensee faces federal penalties and state discipline.

Finally, remember the right of rescission does not apply to a purchase-money loan on a new home. It applies to refinances and home-equity loans on a borrower's principal residence, giving until midnight of the third business day to cancel. A practical takeaway for licensees: never accept anything of value for steering a client to a particular lender, title company, inspector, or insurer, and disclose any affiliated-business arrangement in writing as RESPA requires, or risk both federal liability and a state license complaint.