Federal Financing Regulations

Federal regulations protect consumers and ensure transparency in lending. This section covers TILA, RESPA, TRID, ECOA, and predatory lending.

Truth in Lending Act (TILA) and Regulation Z

TILA requires lenders to disclose the true cost of credit. Regulation Z implements TILA and covers:

• Annual percentage rate (APR)
• Finance charges
• Total of payments

TRID (TILA-RESPA Integrated Disclosures)

TRID combines TILA and RESPA disclosures into two key forms:

• Loan Estimate (LE) - Delivered shortly after application.
• Closing Disclosure (CD) - Provided before closing with final costs.

The Consumer Financial Protection Bureau (CFPB) oversees these regulations.

Real Estate Settlement Procedures Act (RESPA)

RESPA prohibits kickbacks and unearned fees related to settlement services. Key points:

• No referral fees for settlement services
• Required disclosure of affiliated business arrangements
• Limits on escrow account balances

Use this reference to keep key federal lending acronyms straight on the exam.

Acronym Reference

Table: Federal Lending Acronyms

Equal Credit Opportunity Act (ECOA)

ECOA prohibits discrimination in lending based on protected characteristics, including race, color, religion, national origin, sex, marital status, age, or receipt of public assistance.

Mortgage Fraud and Predatory Lending

Predatory lending involves unfair or abusive loan terms. Mortgage fraud includes falsifying income, occupancy, or appraisals.

Summary

Know the purpose of each regulation and the key disclosures. TILA focuses on cost of credit, RESPA focuses on settlement practices, TRID standardizes forms, and ECOA prevents discrimination.

TRID Timing Basics

• Loan Estimate must be delivered within a short time after application.
• Closing Disclosure must be provided before closing so the buyer can review final costs.

RESPA Key Concepts

RESPA is designed to prevent kickbacks and to give consumers transparency in settlement services. It also limits how much lenders can require for escrow reserves.

Predatory Lending Warning Signs

• Excessive fees or points
• Steering borrowers into higher-cost loans without benefit
• Falsifying income or occupancy

Exam Application Check

If a question asks which agency enforces TRID rules, the answer is the CFPB.

Lending Disclosures in Practice

Borrowers should compare the Loan Estimate to the Closing Disclosure to confirm that fees and terms did not change unexpectedly. Large changes require explanation and may delay closing.

ECOA and Fair Lending

ECOA also requires lenders to provide timely notice of action taken on an application. If a loan is denied, the borrower is entitled to an adverse action notice.

Exam Application Check

If a question asks which law requires notice of adverse action, the answer is ECOA.

Predatory Lending Example

A lender steers a borrower into a higher-cost loan even though the borrower qualifies for a lower-cost option. This can be considered predatory lending. On the exam, look for excessive fees, unnecessary products, or deceptive practices.

Exam Application Check

If a question asks which law addresses settlement kickbacks, the answer is RESPA. If it asks which law covers cost-of-credit disclosure, the answer is TILA.

Loan Estimate vs. Closing Disclosure

The Loan Estimate is issued early and is based on the initial application. The Closing Disclosure shows final numbers. If major changes occur, the closing timeline may reset.

Exam Application Check

If a question asks which document is provided at application, the answer is the Loan Estimate.

Exam Application Check

• If a question asks which law discloses APR, the answer is TILA.
• If it asks which law prohibits kickbacks, the answer is RESPA.
• If it asks which form summarizes final costs, the answer is Closing Disclosure.

Appraiser Independence and Loan Decisions

Lenders must maintain appraiser independence. Agents can provide factual information, but cannot attempt to influence the value conclusion. If an appraisal comes in low, the lender may reduce the loan amount or require additional cash.

Exam Application Check

If a question asks who can pressure an appraiser, the answer is no one.

Credit Disclosures and Timing

Borrowers must receive timely disclosures so they can compare loan offers. Delays can trigger compliance issues and closing delays.

Exam Application Check

If a question asks which document is delivered early in the process, the answer is the Loan Estimate.

Loan Decision Outcomes

When a loan is approved, the lender issues a commitment. If the loan is denied, the lender must provide an adverse action notice explaining the decision.

Exam Application Check

If a question asks what a loan commitment means, it indicates the lender agrees to fund the loan subject to conditions.

Credit Denial and Adverse Action

If a loan is denied, the borrower must receive an adverse action notice explaining the reason. This protects consumers and supports fair lending.

Exam Application Check

If a question asks what document explains a loan denial, the answer is the adverse action notice under ECOA.

Regulation Z in Practice

Regulation Z requires clear disclosure of finance charges and APR. It helps borrowers compare loans with different fee structures.

Exam Application Check

If a question asks which regulation implements TILA, the answer is Regulation Z.