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

The four laws at a glance

Note that TRID is not a separate statute so much as the integrated disclosure rule implementing RESPA and TILA together. The CFPB administers all of these.

RESPA — settlement costs and kickbacks

RESPA (Real Estate Settlement Procedures Act) applies to federally related mortgage loans on 1–4 family residential property. Its two big exam points:

1. Disclosure: the borrower must receive standardized settlement-cost information so closing fees are not a surprise.
2. Anti-kickback (Section 8): no person may give or accept a fee, kickback, or thing of value for referring settlement-service business. A title company cannot pay an agent for steering clients. Genuine payment for services actually performed is allowed; payment for the mere referral is not.

TILA / Regulation Z — truth in lending

TILA requires lenders to disclose the annual percentage rate (APR) and the total finance charge so borrowers can compare loans on a uniform basis. The APR is higher than the note (nominal) rate because it includes interest plus certain finance charges and fees expressed as a yearly rate.

Advertising trigger terms

If an ad states any one of these trigger terms, it must also disclose the full credit terms (down payment, terms of repayment, and APR):

• The amount or percentage of a down payment
• The number of payments or period of repayment
• The amount of any payment
• The amount of any finance charge

A general statement like "low rates available" or "easy financing" is not a trigger term and needs no extra disclosure. But "$0 down" or "$899/month" is a trigger and forces full disclosure.

Right of rescission

TILA gives a 3-business-day right of rescission on certain refinances and home-equity loans on a principal residence — it does not apply to the purchase loan on a home you are buying. The trap: rescission protects refinances and second mortgages on a primary home, not first-purchase mortgages.

TRID — the timing rule you must memorize

TRID created two consumer forms and two hard deadlines:

• Loan Estimate (LE): the lender must deliver or mail it within 3 business days of application. It gives good-faith estimates of rate, payments, and closing costs.
• Closing Disclosure (CD): the borrower must receive it at least 3 business days before consummation (closing). This window lets the borrower compare final terms to the LE.

If certain key terms change after the CD is issued — the APR becomes inaccurate beyond tolerance, a prepayment penalty is added, or the loan product changes — a new 3-business-day waiting period restarts. Minor fee changes do not restart the clock.

Memory hook: "3 days after application (LE), 3 days before closing (CD)."

ECOA — equal credit opportunity

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

• Race or color
• Religion
• National origin
• Sex
• Marital status
• Age (provided the applicant can contract)
• Receipt of income from a public-assistance program
• Good-faith exercise of rights under the Consumer Credit Protection Act

ECOA also requires a lender to notify an applicant of adverse action (denial) and the reasons. Note ECOA's classes differ from Fair Housing classes — ECOA adds marital status, age, and public-assistance income, which the Fair Housing Act does not list.

How these laws overlap on one transaction

A single loan can implicate all four. Suppose a lender advertises "$0 down, 4.9% APR" (TILA trigger terms), takes the application and issues a Loan Estimate (TRID/RESPA), pays the listing agent a fee for steering the borrower to its in-house title company (RESPA Section 8 violation), and then denies a qualified applicant after learning her income comes partly from public assistance (ECOA violation). On the exam, isolate the issue: advertising and APR point to TILA; settlement-form timing points to TRID; referral kickbacks point to RESPA; denial based on a protected class points to ECOA.

Choosing the statute that matches the trigger fact is the whole skill — each law owns a different slice of the financing process, and the wrong answer usually names the law that governs a neighboring slice.

RESPA Section 8: Kickbacks and Affiliated Business

RESPA Section 8 is the most heavily tested financing-compliance rule. It prohibits kickbacks, fee-splits, and unearned fees for the referral of settlement-service business in a federally related mortgage. An agent may not accept cash, a gift card, or any thing of value for steering a buyer to a particular lender, title company, or inspector. The penalty is steep: up to a $10,000 fine and one year in prison, plus treble damages to the consumer.

What is allowed: a normal payment for services actually performed, ordinary business courtesies of nominal value not tied to referrals, and an affiliated business arrangement (AfBA) if three conditions are met, the relationship is disclosed in writing, the consumer is free to shop elsewhere, and the only thing received is a return on ownership interest. A real estate firm that owns a title company can refer clients to it only under a compliant AfBA disclosure. On the exam, any fact pattern where a licensee receives something of value for sending business elsewhere is a Section 8 violation.

The Closing Disclosure and the Loan Estimate

TRID replaced the old GFE and HUD-1 with two consumer forms. The Loan Estimate (LE) must be delivered within three business days of application and presents the projected rate, payments, and closing costs. The Closing Disclosure (CD) must be in the borrower's hands at least three business days before consummation, giving the borrower time to compare it against the LE.

Three changes restart the three-day clock: a change in the APR beyond tolerance, a switch in the loan product, or the addition of a prepayment penalty. Lesser changes do not reset it. Closing costs are grouped into categories with zero tolerance (lender fees, transfer taxes), 10% cumulative tolerance (recording fees, services the borrower could not shop for), and no tolerance limit (prepaid interest, items the borrower shopped for outside the lender's list). Memorizing which fees fall in the zero-tolerance bucket is a common exam target, because those cannot increase from LE to CD without a lender credit.