7.3 Federal Financing Regulations (RESPA, TILA, ECOA, TRID)
Key Takeaways
- TILA (implemented by Regulation Z) forces disclosure of the APR, finance charge, amount financed, and total of payments so borrowers can compare the true cost of credit.
- RESPA bans kickbacks and unearned referral fees for settlement services, requires affiliated-business disclosure, and limits escrow cushion to roughly two months of charges.
- ECOA prohibits credit discrimination based on race, color, religion, national origin, sex, marital status, age, or receipt of public assistance, and requires an adverse-action notice on denial.
- TRID merges TILA and RESPA into two forms: the Loan Estimate (delivered within 3 business days of application) and the Closing Disclosure (received at least 3 business days before consummation).
- The CFPB enforces TRID; certain changes (APR beyond tolerance, a prepayment penalty added, or a loan-product change) restart the 3-business-day Closing Disclosure waiting period.
Why These Laws Exist
Federal financing law exists to make credit transparent and fair. Each statute targets a different abuse, and the exam rewards you for matching the law to the problem it solves.
| Law | Implemented by | Core purpose | Exam trigger word |
|---|---|---|---|
| TILA | Regulation Z | Disclose true cost of credit | APR, finance charge |
| RESPA | Regulation X | Stop kickbacks; control settlement costs | referral fee, kickback, escrow |
| ECOA | Regulation B | Prevent credit discrimination | protected class, adverse action |
| TRID | Reg Z + Reg X | Standardize disclosure forms/timing | Loan Estimate, Closing Disclosure |
All four are enforced for most mortgages by the Consumer Financial Protection Bureau (CFPB).
TILA and Regulation Z
The Truth in Lending Act does not cap interest rates; it forces disclosure so consumers can shop. Regulation Z implements it and requires the lender to state the:
- APR — the yearly cost of credit expressed as a rate, including interest plus certain fees, so it is usually higher than the note rate.
- Finance charge — the total dollar cost of credit.
- Amount financed and total of payments.
TILA also governs the right of rescission: on a refinance or home-equity loan secured by the borrower's primary residence, the borrower gets three business days to cancel. Trap: there is no rescission right on a loan to purchase a home.
RESPA
The Real Estate Settlement Procedures Act targets the settlement-services market. Its rules:
- No kickbacks or unearned fees — you cannot pay or receive anything of value for referring settlement business (Section 8). A real fee for a real service is fine; paying for a mere referral is not.
- Affiliated business arrangement (AfBA) disclosure — if a broker refers a buyer to a settlement provider it owns, that relationship must be disclosed and the buyer cannot be required to use it.
- Escrow limits — a lender may keep at most about a two-month cushion in the escrow account.
RESPA applies to federally related mortgage loans on 1-4 unit residential property.
ECOA
The Equal Credit Opportunity Act prohibits discrimination in any aspect of a credit transaction based on these protected bases:
- Race or color
- Religion
- National origin
- Sex (including gender)
- Marital status
- Age (provided the applicant can contract)
- Receipt of public assistance income
ECOA also requires an adverse-action notice: if a lender denies credit or offers worse terms, it must tell the applicant the specific reasons (or how to get them) in writing. Trap: ECOA protected classes are not identical to the federal Fair Housing Act classes — ECOA adds marital status, age, and public assistance but does not list familial status or disability by those names.
TRID: The Two Forms and Their Timing
TRID (the TILA-RESPA Integrated Disclosure rule) replaced older forms with two:
| Form | When delivered | Purpose |
|---|---|---|
| Loan Estimate (LE) | Within 3 business days of application | Good-faith estimate of rate, payment, and closing costs |
| Closing Disclosure (CD) | Received at least 3 business days before consummation | Final, actual loan terms and costs |
The 3-3 rule is heavily tested: LE within 3 days of application, CD at least 3 days before closing. The buyer compares the CD to the LE to confirm nothing drifted outside tolerance.
What Restarts the 3-Day CD Window
Only three changes force a new three-business-day waiting period after the CD is issued:
- The APR increases beyond tolerance (more than 1/8% for fixed loans).
- A prepayment penalty is added.
- The loan product changes (for example, fixed becomes adjustable).
Routine fee corrections do not restart the clock. Trap: a small decrease in costs or a clerical fix does not reset the waiting period.
Tolerances: How Much Can Costs Change?
TRID groups the fees on the Loan Estimate into tolerance buckets so the final Closing Disclosure cannot drift unfairly.
- Zero tolerance — lender/broker fees, transfer taxes, and any service the borrower could not shop for cannot increase at all.
- 10% cumulative tolerance — recording fees and charges for providers the lender selected from a shopping list may rise, but only up to 10% in total.
- No tolerance limit — prepaid interest, property insurance, escrow deposits, and services the borrower shopped for on their own can change with circumstances.
If a zero-tolerance fee rises, the lender must cure it by crediting the borrower the difference. This is why the exam stresses comparing the LE and CD line by line.
Role of the Real Estate Licensee
Agents are not lenders, but the exam expects them to support compliance. A licensee should refer financing questions to a qualified loan officer, avoid promising specific rates or approval, and never accept a kickback for steering a buyer to a particular lender, title company, or inspector — that violates RESPA Section 8.
Agents must also respect appraiser independence: providing factual property data is fine, but pressuring an appraiser toward a target value is prohibited. Finally, a licensee should make sure deadlines for the Loan Estimate and Closing Disclosure are built into the contract timeline so a TRID waiting period does not derail the closing date.
A lender issues the Closing Disclosure, then changes the loan from a fixed rate to an adjustable rate before closing. What must happen?
Which protected basis is covered by ECOA but is NOT one of the federal Fair Housing Act protected classes?