7.3 Federal Financing Regulations (RESPA, TILA, ECOA, TRID)
Key Takeaways
- TILA (Reg Z) discloses the cost of credit via APR, controls advertising trigger terms, and grants a 3-day rescission on certain refinances - not purchases.
- RESPA (Reg X) governs settlement services, bans kickbacks and unearned referral fees, and limits escrow amounts.
- ECOA (Reg B) prohibits credit discrimination on protected bases and requires an adverse-action notice when credit is denied.
- TRID merged forms into the Loan Estimate (within 3 days of application) and Closing Disclosure (3 days before closing) - 'three to get, three to set.'
- Only an out-of-tolerance APR, a loan-product change, or an added prepayment penalty restarts the 3-day CD waiting period.
Federal Financing Regulations (RESPA, TILA, ECOA, TRID)
Federal financing law protects consumers through disclosure and anti-discrimination rules. The exam expects you to match each acronym to its purpose, its key forms, and its timing.
TILA (Truth in Lending Act) - Regulation Z
TILA forces lenders to disclose the true cost of credit so borrowers can compare loans. Its headline figure is the Annual Percentage Rate (APR), which folds interest plus most finance charges into one yearly rate.
- Regulates advertising: if an ad states a trigger term (down payment amount, payment amount, term, or finance charge), it must disclose APR and other terms.
- Grants a 3-business-day right of rescission on certain refinances and home-equity loans on a primary residence - not on a purchase loan.
RESPA (Real Estate Settlement Procedures Act) - Regulation X
RESPA governs settlement services on federally related residential mortgage loans. Its core mission is transparency in closing costs and a ban on hidden compensation.
- Prohibits kickbacks and unearned fees (Section 8) for referrals of settlement business.
- Limits the amount a lender may require in an escrow/impound account.
- Requires a Loan Estimate and Closing Disclosure (now under TRID) and, for certain affiliated-business arrangements, an Affiliated Business Arrangement Disclosure.
ECOA (Equal Credit Opportunity Act) - Regulation B
ECOA prohibits discrimination in any credit transaction based on race, color, religion, national origin, sex, marital status, age, or because income comes from public assistance.
- A denied applicant is entitled to a notice of adverse action with reasons.
- A lender may not discourage an application on a prohibited basis.
TRID - the integrated disclosures
TRID (TILA-RESPA Integrated Disclosure) merged the older Good Faith Estimate / Truth-in-Lending forms into the Loan Estimate (LE) and the HUD-1 into the Closing Disclosure (CD).
| Form | Replaces | Delivered | Timing |
|---|---|---|---|
| Loan Estimate (LE) | GFE + initial TIL | After application | Within 3 business days of application |
| Closing Disclosure (CD) | HUD-1 + final TIL | Before closing | At least 3 business days before consummation |
Memory hook: "3 to get, 3 to set." The LE arrives within 3 business days of application; the CD must be in the borrower's hands at least 3 business days before closing.
What triggers a new 3-day CD waiting period
Only three changes reset the 3-business-day Closing Disclosure clock:
- The APR becomes inaccurate (increases beyond tolerance).
- The loan product changes (e.g., fixed to adjustable).
- A prepayment penalty is added.
Minor fee adjustments require a corrected CD but generally do not restart the 3-day period.
Worked timing example
A borrower applies on Monday. The LE must be delivered by Thursday (3 business days). Later, the CD is delivered electronically on a Friday; the earliest the loan can close is the following Wednesday (counting 3 business days, with Sunday excluded). If the lender raises the APR beyond tolerance the day before closing, a new 3-day period restarts.
RESPA escrow and servicing rules
Beyond kickbacks, RESPA limits how much cushion a lender may keep in an escrow (impound) account for taxes and insurance - generally no more than a two-month cushion. It also requires a servicing transfer notice when the right to collect payments is sold, and prompt handling of borrower error disputes. These operational rules appear in fact patterns about closing-cost increases and escrow shortages.
How the disclosures fit together
The LE and CD must be comparable line by line so a borrower can verify the lender honored the estimate. Costs are grouped into tolerance buckets:
| Tolerance category | Examples | Allowed increase |
|---|---|---|
| Zero tolerance | Lender/origination fees, transfer taxes | No increase |
| 10% tolerance | Required services borrower cannot shop | Up to 10% in aggregate |
| No tolerance limit | Prepaid interest, insurance, items borrower shops | Can vary |
If a zero-tolerance fee rises, the lender must cure the difference - reimburse the borrower. This is why mis-estimating a recording or transfer fee costs lenders money, and why the exam frames tolerance violations as a lender problem, not a borrower one.
Other key acts
- Fair Credit Reporting Act (FCRA): governs accuracy and use of credit reports; a borrower may dispute errors.
- Home Mortgage Disclosure Act (HMDA): requires lenders to report loan-application data to detect discriminatory lending patterns.
Common traps
- The right of rescission applies to refinances/home-equity on a primary residence, never to a purchase-money loan.
- APR is not the interest rate - it is higher because it includes finance charges.
- ECOA's marital-status protection means a lender cannot require a spouse's signature solely because the applicant is married, if the applicant qualifies alone.
- RESPA's kickback ban covers referral fees, even disguised as gifts or services.
- Business days for the LE exclude Sundays and federal holidays; the CD's 3-day rule counts most calendar days except Sundays and holidays - read the question's day labels carefully.
Under TRID, which change requires the lender to provide a new Closing Disclosure and restart the 3-business-day waiting period before closing?
A lender denies a loan and refuses to tell the applicant why. The applicant's income comes partly from public assistance. Which law is most directly implicated?
The Two TRID Disclosures and Their Timing
The TILA-RESPA Integrated Disclosure (TRID) rule merged earlier forms into two documents the exam tests by name and deadline:
| Form | Replaces | Timing rule |
|---|---|---|
| Loan Estimate (LE) | Good Faith Estimate + early TIL | Delivered within 3 business days of application |
| Closing Disclosure (CD) | HUD-1 + final TIL | Received at least 3 business days before closing |
A changed circumstance (such as a higher loan amount or a switched loan product) can trigger a revised LE. Three changes force a new 3-day waiting period on the CD: the APR becomes inaccurate (more than 1/8% on a fixed loan), a prepayment penalty is added, or the basic loan product changes. Minor fee adjustments do not restart the clock.
RESPA, ECOA, and the Right of Rescission
RESPA governs closing-cost disclosure and prohibits kickbacks and unearned fees for referrals among settlement-service providers - an agent may not accept a payment merely for steering a client to a particular title company. ECOA (Equal Credit Opportunity Act) bars discrimination in lending on protected bases and requires the lender to give the applicant the specific reasons for a denial (or how to obtain them) within 30 days.
The TILA right of rescission lets a borrower cancel within three business days - but only on a refinance or home-equity loan on a primary residence, never on a purchase-money loan to buy a home. A worked scenario: a homeowner refinances on a Wednesday; the rescission window runs through the third business day, and funds are not disbursed until it closes. On a purchase, there is no such cooling-off period.