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

The four-letter alphabet soup

Federal consumer-credit law dominates the financing portion. Learn what each statute protects against, because the exam frames questions as scenarios, not definitions.

• TILA (Truth in Lending Act) = cost disclosure. Forces lenders to disclose the APR, finance charge, total of payments, and gives certain rescission rights.
• RESPA (Real Estate Settlement Procedures Act) = settlement-cost transparency and a ban on kickbacks.
• ECOA (Equal Credit Opportunity Act) = anti-discrimination in lending.
• TRID (TILA-RESPA Integrated Disclosure) = the combined forms and timing rules.

Memory hook: TILA = true cost, RESPA = settlement, ECOA = equal credit.

TILA and Regulation Z

TILA is implemented by Regulation Z. It requires disclosure of the annual percentage rate (APR) — the true cost of credit including most fees — so borrowers can compare loans.

• APR vs. interest rate: the note rate is the bare interest; the APR rolls in points and finance charges, so APR is usually higher.
• Right of rescission: on a refinance or home-equity loan on a primary residence, the borrower has 3 business days to cancel. This does not apply to a purchase-money loan to buy the home.
• Trigger terms: ads stating a specific figure (e.g., "$900/month" or "5% down") must disclose full terms (APR, down payment, term).

RESPA (Regulation X)

RESPA applies to federally related mortgage loans on 1-4 unit residential property. Two heavily tested rules:

• Section 8 prohibits kickbacks and unearned fees for referrals between settlement-service providers. A title company paying an agent for sending clients violates Section 8 — penalties up to $10,000 and imprisonment.
• Affiliated business arrangements must be disclosed, and the consumer cannot be required to use the affiliate (except attorney/title in some cases).

RESPA also limits the escrow/impound cushion a lender can require to roughly two months of payments. A free lunch from a lender to a broker that influences referrals is the classic Section 8 violation on the exam.

ECOA and fair lending

ECOA prohibits credit discrimination based on race, color, religion, national origin, sex, marital status, age, or receipt of public assistance.

• A lender may ask about income from public assistance to evaluate capacity but cannot discount it.
• Applicants are entitled to a notice of action within 30 days and a statement of specific reasons for denial.

Trap: ECOA's classes overlap with but are not identical to the Fair Housing Act classes. Fair Housing covers familial status and disability for housing transactions; ECOA's list (above) governs credit. A question about loan denial points to ECOA, not Fair Housing.

TRID timing (the date math)

TRID merged old forms into two:

• Loan Estimate (LE): must be delivered within 3 business days of application.
• Closing Disclosure (CD): borrower must receive it at least 3 business days before consummation (closing).

Worked example: a borrower receives the CD on Monday. Counting three business days (Tue, Wed, Thu), the earliest the loan can close is Friday. Certain changes — APR increase beyond tolerance, adding a prepayment penalty, or a loan-product change — restart the 3-day clock. Minor changes (most fee adjustments) do not.

What counts as an 'application' and tolerances

TRID timing keys off a defined application, which exists once the lender has six pieces of information: name, income, Social Security number, property address, estimated property value, and loan amount sought. Collecting those six items starts the 3-business-day Loan Estimate clock, so loan officers must be careful not to gather them prematurely.

The Loan Estimate is also a promise about costs, enforced by tolerance rules:

• Zero tolerance: lender's own charges and transfer taxes cannot increase at all.
• 10% tolerance: certain third-party services the borrower could not shop may rise up to 10% in aggregate.
• No tolerance limit: items the borrower shops for, prepaid interest, and property insurance can change.

If a charge exceeds its tolerance, the lender must cure the overage by crediting the borrower at or after closing. This is why the Closing Disclosure is compared line-by-line against the Loan Estimate.

Other financing-law touchpoints

A few smaller federal rules round out the topic.

• The Fair Credit Reporting Act (FCRA) governs credit reports; an applicant denied credit based on a report must receive an adverse action notice identifying the reporting agency.
• The Home Mortgage Disclosure Act (HMDA) requires lenders to report loan data so regulators can detect discriminatory patterns.
• Mortgage fraud schemes — straw buyers, inflated appraisals, undisclosed kickbacks — violate multiple statutes and can trigger criminal liability.

For the exam, connect the symptom to the statute: a denied applicant asking why points to ECOA's reason requirement and FCRA's report disclosure; a hidden referral fee points to RESPA Section 8; a missing or misstated APR points to TILA. Reading scenario stems for the harmed party and the harm makes the right statute jump out.