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

Truth in Lending Act (TILA) and Regulation Z

The Truth in Lending Act (TILA), implemented through Regulation Z, forces lenders to disclose the real cost of borrowing so consumers can compare offers. Required disclosures include:

• The annual percentage rate (APR), which folds certain fees into the interest rate to reflect true cost.
• The finance charge, the total dollar cost of credit.
• The total of payments and the amount financed.

Regulation Z also governs advertising: if an ad states a "trigger term" such as a specific down payment, monthly payment, or rate, it must also disclose other key terms. The APR is the classic TILA exam trigger; if a question asks which law discloses APR, the answer is TILA.

Real Estate Settlement Procedures Act (RESPA)

RESPA governs federally related mortgage loans and protects consumers in the settlement process. It:

• Prohibits kickbacks, referral fees, and unearned fees for settlement-service referrals (Section 8). A title company cannot pay an agent for steering clients to it.
• Requires disclosure of affiliated business arrangements (ABAs) when a provider refers business to a company it partly owns.
• Limits escrow account cushions to roughly two months of payments.

The spotting cue: language about referral fees or settlement services points to RESPA, not TILA. RESPA targets the conduct of settlement providers, while TILA targets disclosure of credit cost.

TRID: Integrated Disclosures and Timing

TRID (TILA-RESPA Integrated Disclosures) merged the older forms into two documents and set strict timing.

Table: TRID Disclosure Timing

The buyer must receive the CD at least three business days before closing so terms can be compared to the LE. Certain changes, an APR increase beyond tolerance, a prepayment-penalty addition, or a loan-product change, trigger a new 3-day waiting period. The CFPB enforces TRID.

Equal Credit Opportunity Act (ECOA)

ECOA prohibits discrimination in any credit transaction based on race, color, religion, national origin, sex, marital status, age, or receipt of public assistance income. Note that ECOA's classes differ slightly from the Fair Housing Act, ECOA adds age, marital status, and public assistance.

ECOA also requires a lender to send an adverse-action notice when it denies credit or offers worse terms, stating the specific reasons. If a question asks which law requires notice of a loan denial, the answer is ECOA.

Enforcement and Predatory Lending

The Consumer Financial Protection Bureau (CFPB) enforces TILA, RESPA, TRID, and ECOA. Predatory lending, excessive fees, equity stripping, loan flipping, or steering a qualified borrower into a higher-cost product, violates these consumer-protection goals.

TILA Right of Rescission

For certain refinances and home-equity loans on a borrower's primary residence, TILA grants a three-business-day right of rescission: the borrower may cancel within three business days after signing, receiving the disclosures, and getting the notice of the right to cancel. The clock counts Saturdays but not Sundays or federal holidays.

Critical trap: the right of rescission does not apply to a loan used to purchase a home. It covers refinances and second mortgages on the borrower's own residence, never a purchase-money loan or an investment property.

RESPA Coverage and the Servicing Transfer

RESPA applies to federally related mortgage loans secured by one-to-four-family residential property. Beyond the kickback ban, RESPA:

• Requires a servicing-transfer notice when the right to collect payments is sold, so the borrower knows where to send payments.
• Lets a borrower send a qualified written request to dispute a servicing error and requires a timely response.
• Limits the escrow cushion a servicer may hold to roughly two months of escrow payments.

Table: Which Federal Law Governs Each Topic

TRID Tolerances: Zero, 10%, and Unlimited

TRID limits how much certain quoted fees may rise between the Loan Estimate and the Closing Disclosure.

• Zero-tolerance items cannot increase at all: the lender's own charges, transfer taxes, and fees for services the borrower could not shop for.
• 10%-tolerance items may rise but only up to 10% in aggregate: recording fees and charges for third-party services the borrower selected from the lender's list.
• No-tolerance (unlimited) items can change with market conditions: prepaid interest, property insurance premiums, and services the borrower shopped for outside the lender's list.

If a charge exceeds its tolerance, the lender must cure the overage, usually by crediting the borrower at or after closing.

When a New Three-Day Wait Is Triggered

After the Closing Disclosure is delivered, only three specific changes restart the 3-business-day waiting period before consummation:

1. The APR becomes inaccurate beyond tolerance (more than 1/8% for most loans).
2. A prepayment penalty is added.
3. The loan product itself changes (for example, fixed-rate to adjustable).

Routine changes, a small fee adjustment, a seller credit, or a typo fix, do not restart the clock. This is a favorite exam distinction: most last-minute edits keep the original closing date.

Worked Scenario

A borrower's Closing Disclosure shows a fixed 6.5% loan. Two days before closing, the lender switches the borrower to an adjustable-rate product. Because the loan product changed, a new 3-business-day waiting period begins, pushing the closing back. Had the lender instead corrected a misspelled street name, closing could proceed on schedule.