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

The Big Four Financing Laws

Federal consumer-protection statutes govern how residential mortgages are disclosed and marketed. The exam tests the purpose of each.

• RESPA (Real Estate Settlement Procedures Act) — controls settlement-service disclosures and prohibits kickbacks and unearned referral fees.
• TILA (Truth in Lending Act) — requires disclosure of the true cost of credit, especially the APR and total finance charge; enforced through Regulation Z.
• ECOA (Equal Credit Opportunity Act) — prohibits discrimination in lending.
• TRID — the TILA-RESPA Integrated Disclosure rule, which merged the two disclosure regimes into two consumer forms.

Link each law to its keyword: RESPA = settlement/kickbacks, TILA = cost of credit/APR, ECOA = fair lending, TRID = the combined forms.

RESPA Details

RESPA applies to federally related mortgage loans on one-to-four-unit residential property. Its core rules:

• Section 8 bans kickbacks, fee-splitting, and unearned fees for referrals of settlement business. A title company may not pay an agent for steering buyers to it.
• It limits the amount a lender can require in an escrow (impound) account for taxes and insurance.
• It requires disclosure of any affiliated business arrangement so the consumer knows of ownership ties.

A classic trap: giving a normal commission split or a thank-you gift of nominal value is fine, but paying for referrals of settlement services violates Section 8 — even if no money changes hands and only a thing of value is exchanged.

TILA and Regulation Z

TILA, implemented by Regulation Z, forces lenders to disclose credit costs uniformly so borrowers can comparison-shop.

• The APR (annual percentage rate) bundles the interest rate with most loan costs, so it usually exceeds the note rate.
• The finance charge is the total dollar cost of credit over the loan term.
• Trigger terms in advertising — stating a specific down payment, monthly payment, term, or rate — force full disclosure of APR and other terms. Saying only "low down payment" is not a trigger; saying "5% down" is.
• TILA provides a 3-day right of rescission on certain refinances of a primary residence — not on purchase loans.

ECOA — Fair Lending

ECOA prohibits discrimination in any aspect of a credit transaction based on protected bases:

• Race or color
• Religion
• National origin
• Sex
• Marital status
• Age (provided the applicant can contract)
• Receipt of public assistance income

A lender may not discourage an application or set different terms on these bases, and must give applicants notice of action taken (and reasons for adverse action). Note that ECOA's list overlaps but is not identical to the federal Fair Housing Act list — ECOA adds marital status, age, and public-assistance income, which Fair Housing does not name.

Other Disclosure and Reporting Rules

Several supporting laws round out the federal framework:

• Home Mortgage Disclosure Act (HMDA) — requires lenders to report mortgage application and origination data so regulators can spot discriminatory lending patterns.
• Fair Credit Reporting Act (FCRA) — governs use of credit reports and gives consumers the right to dispute errors and to a free annual report.
• Mortgage Acts and Practices / advertising rules — prohibit deceptive mortgage advertising.

The Consumer Financial Protection Bureau (CFPB) is the primary federal enforcer of RESPA, TILA, ECOA, and TRID for most consumer mortgages today. A frequent exam point: these laws apply chiefly to consumer, owner-occupied, residential credit; a loan made purely for a commercial or business purpose is generally outside TILA's consumer protections, even though anti-discrimination duties under ECOA still apply broadly.

TRID: Loan Estimate and Closing Disclosure

TRID replaced older forms with two documents that drive closing timing.

The mandatory 3-day CD waiting period lets the borrower compare final terms to the estimate. Certain changes — a higher APR beyond tolerance, a prepayment penalty added, or a loan-product change — reset the 3-day clock. Memorize: LE = 3 days after application; CD = 3 days before closing.

Right of rescission timing, RESPA servicing rules, and a TRID change-of-circumstance worked case

TILA's 3-day right of rescission applies to refinances and home-equity loans secured by the borrower's principal residence — never to a purchase-money loan on a new home. The clock runs three business days (Saturdays count, Sundays and federal holidays do not) from the latest of signing, delivery of the TILA disclosures, or delivery of the rescission notice. If the lender omits the required notice, the rescission window can extend up to three years.

Worked trap: a buyer purchasing a new primary home wants to "cancel within three days." There is no right of rescission on a purchase loan — that protection covers refinances, not purchases.

RESPA also governs the servicing relationship after closing: the servicer must provide a servicing transfer notice before transferring the loan, must respond to a borrower's qualified written request, and must manage the escrow account within RESPA's cushion limits. Section 8's kickback ban reaches any "thing of value" exchanged for the referral of settlement business, not just cash.

TRID tolerances and redisclosure are heavily tested. Some fees have zero tolerance (the lender's own charges, transfer taxes) and cannot increase from the Loan Estimate. Others fall in a 10% aggregate tolerance bucket (recording fees, services the borrower could shop for from the lender's list). A genuine changed circumstance — the borrower chooses a different product, the appraisal reveals a problem, or the borrower's eligibility changes — permits a revised Loan Estimate.

Worked case: three business days before closing, the lender raises the APR beyond tolerance by adding a previously undisclosed charge. This change resets the mandatory 3-business-day Closing Disclosure waiting period, pushing the closing later. The exam answer is that the clock restarts; the borrower must again have three business days to review.