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. Its core purposes: ensure borrowers receive clear settlement-cost disclosures and eliminate abusive practices. Section 8 prohibits kickbacks, fee-splitting, and unearned referral fees. A title company may not pay an agent for steering buyers to it, and a lender may not require the use of an affiliated provider in a way that violates choice rules. RESPA also limits the amount a lender can require in an escrow (impound) account for taxes and insurance.

TILA / Regulation Z (Truth in Lending Act)

TILA, implemented by Regulation Z, requires lenders to disclose the true cost of credit, expressed as the annual percentage rate (APR) and the total finance charge. The APR includes interest plus certain loan costs, so it is usually higher than the note rate.

Advertising trigger terms: If an ad states any specific term such as the down payment amount, the number of payments, the payment amount, or the finance charge, it must then disclose the full terms (APR, down payment, terms of repayment). Stating only "low monthly payments" or just the APR alone does not trigger full disclosure. TILA also gives a 3-business-day right of rescission on certain refinances of a principal residence (not on a purchase 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 (if the applicant can contract), or because income comes from a public assistance program. A lender cannot discount alimony or part-time income solely because of these protected traits, and must notify the applicant of action taken on the application. Note the overlap but difference from fair-housing law: ECOA targets credit, the Fair Housing Act targets housing transactions.

TRID (TILA-RESPA Integrated Disclosure)

TRID merged the older RESPA/TILA forms into two documents:

The 3-day CD waiting period gives the borrower time to compare the final terms to the LE. Three changes re-trigger a new 3-day wait: (1) the APR becomes inaccurate beyond tolerance, (2) a prepayment penalty is added, or (3) the basic loan product changes (for example, fixed to ARM). Minor changes like a typo or a small fee adjustment do not restart the clock.

Application definition (TRID's six items): name, income, Social Security number, property address, estimated property value, and loan amount. Once all six are received, the 3-business-day LE clock starts.

Fee tolerances

TRID also caps how much certain disclosed costs may rise from the LE to the CD. Lender fees and items the borrower may not shop for fall under a zero tolerance - they cannot increase at all. Some third-party services the borrower can shop for fall under a 10% tolerance (the total may rise up to 10%). A few items, such as prepaid interest, property insurance, and amounts placed in an escrow account, have no tolerance limit because they are beyond the lender's control. If a charge exceeds its tolerance, the lender must cure it by refunding the excess to the borrower.

How the laws fit together

Think of the four laws by what each one targets. RESPA = settlement-process integrity and anti-kickbacks. TILA/Reg Z = the cost of credit (APR, finance charge, advertising). ECOA = fairness in granting credit. TRID = the disclosure forms and timing that operationalize RESPA and TILA together. A single transaction can implicate all four at once: an agent who steers a buyer to a kickback-paying lender (RESPA), runs an ad quoting only a low payment (TILA trigger-term issue), and treats applicants differently by marital status (ECOA) commits three distinct violations.

A second key TILA point: the right of rescission applies to refinances and home-equity loans on a principal residence, giving the borrower three business days to cancel - but it never applies to a loan used to purchase that residence, because the law assumes the buyer freely chose to buy.

A combined-violation walkthrough and the rescission timing trap

The cleanest way to lock in the four laws is to run one transaction through all of them. A buyer applies for a loan on a four-unit owner-occupied building. (1) The lender must deliver the Loan Estimate within 3 business days of receiving the six TRID application items — TRID/TILA. (2) The agent may not accept a fee from the title company for steering the buyer there — RESPA Section 8. (3) The lender may not weigh the wife's income less because she is a woman or because part of it is public assistance — ECOA. (4) The lender must deliver the Closing Disclosure at least 3 business days before closing — TRID.

One deal, four statutes, each with a distinct trigger.

Rescission timing trap: TILA's 3-business-day right of rescission applies to refinances and home-equity loans on a principal residence — never to a loan used to purchase a home. Examiners reliably plant a purchase-money fact pattern and offer "the buyer may rescind within 3 days" as a wrong answer. There is no purchase-loan rescission right under TILA.

Worked APR-vs-note-rate point: A note rate of 6.50% with $6,000 in finance charges on a $300,000 loan produces an APR higher than 6.50%, because APR folds those costs into the effective yearly cost of credit. When a question asks why the APR exceeds the quoted interest rate, the answer is that the APR includes prepaid finance charges and certain fees, not interest alone — the core disclosure TILA exists to provide.