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

Match the law to its job

RESPA in detail

RESPA (Real Estate Settlement Procedures Act) applies to federally related mortgage loans on 1–4 unit residential property. It requires disclosure of settlement costs and prohibits kickbacks, fee-splitting, and referral fees for services where no actual work was performed (Section 8). A title company paying an agent a "thank-you" fee for steering closings violates RESPA. RESPA also limits the cushion a lender may hold in an escrow/impound account.

TILA / Regulation Z in detail

TILA requires lenders to disclose the true cost of credit, expressed as the annual percentage rate (APR) — which folds in finance charges, not just the note rate. TILA grants a right of rescission: on a refinance or HELOC of the borrower's principal residence, the borrower may cancel within 3 business days. This right does not apply to a purchase money loan — a heavily tested distinction.

TILA also governs advertising: if an ad states a triggering term (down payment amount, payment amount, number of payments, or finance charge), it must also disclose the additional required terms (such as APR). Stating only "low monthly payments" with no number is not a trigger.

ECOA and TRID timelines

ECOA (Equal Credit Opportunity Act, Reg B)

ECOA prohibits discrimination in any aspect of a credit transaction based on race, color, religion, national origin, sex, marital status, age (if old enough to contract), or because income comes from a public-assistance program. A lender cannot discount alimony or part-time income simply because of marital status, and must send an adverse-action notice when credit is denied. Note ECOA's protected classes are not identical to the Fair Housing Act's — ECOA adds age, marital status, and public-assistance income for credit specifically.

TRID — the disclosure timeline

TRID ("TILA-RESPA Integrated Disclosure," the Know Before You Owe rule) merged the old GFE/TIL forms into two documents:

• Loan Estimate (LE): delivered within 3 business days of a completed loan application.
• Closing Disclosure (CD): received by the borrower at least 3 business days before consummation (closing).

Certain changes — a new APR beyond tolerance, a prepayment penalty added, or a change in loan product — trigger a new 3-day waiting period. Minor fee changes generally do not.

Worked timeline trap

A borrower's application is complete on Monday, June 1. The LE must go out by Thursday, June 4 (3 business days). For a closing scheduled Friday, June 12, the CD must be received no later than Tuesday, June 9 (3 business days before consummation, counting business days). If the lender re-discloses an out-of-tolerance APR on June 11, closing must move because a fresh 3-day window restarts.

Quick contrasts to memorize

• RESPA = settlement costs + no kickbacks.
• TILA = cost of credit + APR + rescission (refi only).
• ECOA = fair lending (adds age/marital/public-assistance).
• TRID = LE (3 days after application) and CD (3 days before closing).

RESPA Section 8, the CFPB, and Tolerance Buckets

The enforcement and detail layer of the financing laws shows up in tricky questions.

RESPA Section 8 flatly prohibits kickbacks and unearned fees for referrals of settlement-service business. A licensee may not accept a payment from a title company, inspector, or lender merely for steering a client. Affiliated Business Arrangements (AfBAs) are permitted only if the relationship is disclosed in writing, the consumer is free to shop elsewhere, and the only thing of value received is a return on ownership, not a per-referral fee.

The Consumer Financial Protection Bureau (CFPB) now administers RESPA, TILA, ECOA, and the TRID rule.

TRID tolerance buckets govern how much disclosed costs may rise between the Loan Estimate and Closing Disclosure:

• Zero tolerance (cannot increase at all): lender/broker fees, transfer taxes, and fees for services the borrower could not shop for.
• 10% tolerance (may rise up to 10% in aggregate): recording fees and services from a provider on the lender's written list.
• No tolerance limit (may change freely if in good faith): prepaid interest, property insurance, escrow deposits, and services the borrower shopped for outside the list.

Worked example: A lender's origination fee on the Loan Estimate is $1,800 but appears as $2,100 on the Closing Disclosure. Origination is a zero-tolerance charge, so the $300 increase is not allowed; the lender must cure it by crediting the borrower $300 (absent a valid changed-circumstance redisclosure). Recognizing which bucket a fee falls in is the heart of TRID compliance questions.

Right of Rescission, Adverse Action, and a Worked TILA Ad

Three precise rules close out the financing-regulation material.

TILA right of rescission: on a refinance or home-equity loan secured by the borrower's principal residence, the borrower may cancel within three business days (Saturdays count; Sundays and federal holidays do not). This right does not apply to a loan to purchase the home — the most-tested distinction. The lender may not disburse funds until the rescission period expires.

ECOA adverse-action notice: when a lender denies credit or grants it on materially different terms, it must give the applicant a written adverse-action notice stating the specific reasons or how to obtain them, generally within 30 days.

TILA advertising triggers: stating a triggering term (a specific down payment, payment amount, number of payments, or the finance charge) requires also disclosing the additional terms, including the APR. Vague phrases like "easy financing available" are not triggers.

Worked example: An ad reads, "Own this home for $1,295/month!" The monthly payment amount is a triggering term, so the ad must also disclose the down payment, terms of repayment, and the APR. Had the ad said only "affordable monthly payments," no additional disclosure would be triggered. Recognizing the four triggering terms — and that APR (not the note rate) is the required disclosure — is the heart of TILA advertising questions.

RESPA Section 8, the CFPB, and Tolerance Buckets

The enforcement and detail layer of the financing laws shows up in tricky questions.

RESPA Section 8 flatly prohibits kickbacks and unearned fees for referrals of settlement-service business. A licensee may not accept a payment from a title company, inspector, or lender merely for steering a client. Affiliated Business Arrangements (AfBAs) are permitted only if the relationship is disclosed in writing, the consumer is free to shop elsewhere, and the only thing of value received is a return on ownership, not a per-referral fee.

The Consumer Financial Protection Bureau (CFPB) now administers RESPA, TILA, ECOA, and the TRID rule.

TRID tolerance buckets govern how much disclosed costs may rise between the Loan Estimate and Closing Disclosure:

• Zero tolerance (cannot increase at all): lender/broker fees, transfer taxes, and fees for services the borrower could not shop for.
• 10% tolerance (may rise up to 10% in aggregate): recording fees and services from a provider on the lender's written list.
• No tolerance limit (may change freely if in good faith): prepaid interest, property insurance, escrow deposits, and services the borrower shopped for outside the list.

Worked example: A lender's origination fee on the Loan Estimate is $1,800 but appears as $2,100 on the Closing Disclosure. Origination is a zero-tolerance charge, so the $300 increase is not allowed; the lender must cure it by crediting the borrower $300 (absent a valid changed-circumstance redisclosure). Recognizing which bucket a fee falls in is the heart of TRID compliance questions.