Learning Objectives
- 1Identify the purpose, scope, and key provisions of RESPA, ECOA, TILA, HOEPA, and TRID.
- 2Apply disclosure timing rules (3-7-3, LE, CD) and tolerance categories to real-world scenarios.
- 3Distinguish between High-Cost Mortgages (HOEPA) and Higher-Priced Mortgage Loans (HPML).
- 4Explain MLO compensation restrictions, steering prohibitions, and dual compensation rules.
- 5Describe consumer protections under FCRA/FACTA, GLBA, BSA/AML, HPA, and the Dodd-Frank Act.
- 6Identify the roles of the CFPB and HUD in mortgage regulation and enforcement.
Study Chapters
Overview & Purpose
The Real Estate Settlement Procedures Act (RESPA), implemented by Regulation X, is a federal law designed to protect consumers during the home buying and mortgage process. It ensures borrowers receive clear, timely disclosures about settlement costs and prohibits abusive practices like kickbacks.
Memory Aid: Think "REXPA" — RESPA is implemented by Regulation X.
What RESPA Covers
RESPA applies to federally related mortgage loans secured by a 1–4 unit residential property. This includes purchase loans, refinances, home equity loans, and assumptions.
What RESPA Does NOT Cover
- All-cash transactions (no federal loan)
- Rental properties with more than 4 units
- Commercial or business-purpose loans
- Agricultural properties of 25 acres or more
- Temporary construction loans (unless convertible to permanent financing)
Section 8 — Kickbacks & Unearned Fees
Section 8 is the most heavily tested RESPA provision. It strictly prohibits giving or accepting any "thing of value" in exchange for referrals of settlement service business.
| Prohibited | Permitted |
|---|---|
| Cash kickbacks for loan referrals | Nominal promotional items (pens, notepads) |
| Splitting fees where no service is performed | Paying for services actually performed |
| Charging unearned fees (mark-ups) | Normal business entertainment of reasonable value |
| Disproportionate co-marketing payments | Pro-rata split of joint marketing costs |
Penalties: Section 8 violations carry criminal fines up to $10,000 and up to 1 year in jail, plus civil liability for 3× the charge paid for the settlement service.
Section 9 — Title Insurance Choice
Section 9 prohibits a property seller from requiring the buyer to use a specific title insurance company as a condition of the sale.
Penalty: Buyers may sue for 3× (treble damages) the cost of the title insurance.
Section 10 — Escrow Account Limits
| Rule | Limit |
|---|---|
| Monthly collection | No more than 1/12 of annual escrow disbursements |
| Cushion at closing | No more than 1/6 of annual disbursements (2 months) |
| Overage refund threshold | If surplus ≥ $50, must refund within 30 days (if borrower is current) |
| Annual escrow analysis | Required annually; must notify borrower of results |
Affiliated Business Arrangements (AfBA)
An Affiliated Business Arrangement (AfBA) exists when a referring party has a greater than 1% ownership interest in the referred settlement service provider.
- Disclosure must be made at or before the time of referral
- The consumer cannot be required to use the affiliated provider
- The referring party cannot receive anything of value beyond their ownership share
Exam Trap: The threshold is 1%, not 10%. Any ownership interest over 1% triggers the AfBA disclosure requirement.
Required Disclosures & Timing
| Disclosure | Timing |
|---|---|
| Special Information Booklet (Your Home Loan Toolkit) | Within 3 business days of application (purchase only) |
| AfBA Disclosure | At or prior to the time of referral |
| Initial Escrow Statement | At closing or within 45 days after closing |
| Annual Escrow Statement | Annually, within 30 days of computation year |
| Servicing Transfer Notice (transferor) | At least 15 days before effective date |
| Servicing Transfer Notice (transferee) | Within 15 days after effective date |
| Escrow Overage Refund (≥$50) | Within 30 days of annual analysis |
Borrower Protection: After a servicing transfer, borrowers have a 60-day grace period — no late fees can be charged if payment is sent to the old servicer.
Qualified Written Request (QWR): Servicer must acknowledge within 5 days and resolve within 30 days.
Overview & Protected Classes
The Equal Credit Opportunity Act (ECOA), implemented by Regulation B, prohibits discrimination in any aspect of a credit transaction.
Protected Classes (Prohibited Bases)
| ECOA Protected Class | Also in Fair Housing Act? |
|---|---|
| Race | ✅ Yes |
| Color | ✅ Yes |
| Religion | ✅ Yes |
| National Origin | ✅ Yes |
| Sex | ✅ Yes |
| Marital Status | ❌ No (ECOA only) |
| Age (if able to enter a contract) | ❌ No (ECOA only) |
| Receipt of Public Assistance | ❌ No (ECOA only) |
| Good-faith exercise of CCPA rights | ❌ No (ECOA only) |
Definition: Under ECOA, "elderly" means age 62 or older. A lender cannot assign a negative value to an elderly applicant's age.
Adverse Action & Timing Rules
| Situation | Notice Required Within |
|---|---|
| Completed application (approval, denial, or counteroffer) | 30 days |
| Incomplete application | 30 days (deny OR send notice of incompleteness) |
| Counteroffer not accepted by applicant | 90 days after notifying of counteroffer |
Required Contents of Adverse Action Notice
- Statement of the action taken
- Name and address of the creditor
- ECOA notice (statement of the law)
- Name/address of the federal regulatory agency
- Specific reasons for denial OR right to request reasons within 60 days
Income, Co-signers & Government Monitoring
Income Treatment
Creditors cannot discount income from part-time employment, alimony, child support, pension, annuity, or public assistance if it is reliable and likely to continue.
Co-signer Rules
If an applicant independently qualifies, a lender cannot require a co-signer. Requiring a spouse to co-sign when the applicant qualifies alone is a violation.
Government Monitoring Information (GMI)
For home purchase and refinance applications, lenders must request the applicant's race, ethnicity, and sex for HMDA reporting.
- The applicant is not required to provide this information
- If the applicant refuses during a face-to-face interview, the MLO must note the refusal and guess based on visual observation and surname
- If the application is taken by phone/mail/internet and the applicant declines, simply note the refusal
Prohibited Questions: A lender cannot ask about an applicant's plans to have children, birth control practices, or capability to bear children.
Appraisal Rights & Permissible Considerations
Right to Receive Appraisal
For loans secured by a first lien on a dwelling, creditors must provide a copy of all written appraisals promptly upon completion, or at least 3 business days prior to consummation, whichever is earlier. This is automatic — the borrower does not need to request it.
Permissible Considerations
Lenders CAN consider:
- Immigration status — to determine the creditor's rights and remedies
- Age — to verify the applicant can enter a binding contract (usually 18+), or to evaluate factors related to creditworthiness
- Any factor directly related to creditworthiness (credit score, income, DTI, collateral)
Overview, APR & Finance Charge
The Truth in Lending Act (TILA), implemented by Regulation Z, requires lenders to clearly disclose the true cost of credit.
| Term | Definition | Accuracy Tolerance |
|---|---|---|
| APR (Annual Percentage Rate) | Total cost of credit as a yearly rate. Also called the "effective rate." Includes interest rate + finance charges. | ±0.125% for regular transactions; ±0.25% for irregular transactions (e.g. ARMs) |
| Finance Charge | Total dollar cost of credit. Includes interest, origination fees, discount points, and mortgage insurance. | Cannot be understated by more than $100 |
| Note Rate (Nominal Rate) | The stated interest rate on the loan note. Does NOT include fees. | N/A |
Key Distinction: The APR is almost always higher than the Note Rate because it includes fees. Hazard insurance is NOT a finance charge and is not included in the APR.
Right of Rescission
| Rule | Detail |
|---|---|
| Applies to | Refinances & HELOCs on the borrower's principal dwelling |
| Does NOT apply to | Purchase money mortgages, second homes, investment properties |
| Standard period | Until midnight of the 3rd business day after the last of: consummation, delivery of notice, or delivery of material disclosures |
| Extended period (if notice not provided) | Up to 3 years from consummation |
| Who can rescind | Any one consumer with an ownership interest (cancels for all) |
| Lender must return funds | Within 20 calendar days of receiving rescission notice |
Exam Trap: Two copies of the Notice of Right to Cancel must be given to each consumer with an ownership interest. If only one copy is given, the 3-year extended period may apply.
MDIA — The 3-7-3 Rule
The Mortgage Disclosure Improvement Act (MDIA) establishes the 3-7-3 rule:
| Step | Rule |
|---|---|
| 3 | Initial disclosures (Loan Estimate) must be provided within 3 business days of application |
| 7 | Loan cannot consummate until the 7th business day after initial disclosures are provided |
| 3 | If APR changes beyond tolerance, corrected disclosure must be received at least 3 business days before consummation |
Business Day Definitions Under TILA
- For providing the LE: Days the creditor's offices are open for substantially all business functions (typically Mon–Sat, excluding holidays)
- For the 7-day waiting period and rescission: All calendar days except Sundays and legal public holidays
Advertising Trigger Terms
| Trigger Term (requires full disclosures) | Non-Trigger (no additional disclosures needed) |
|---|---|
| "Only 5% down!" | "Low down payments available" |
| "Pay only $1,200/month!" | "Easy monthly payments" |
| "360 monthly payments" | "Financing available" |
| "Finance charge of only $500" | "FHA or VA loans available" |
If a trigger term is used, the ad must also include: (1) the down payment amount/%, (2) the terms of repayment, and (3) the APR (using that exact term).
Rule: The APR must be stated at least as conspicuously as any other rate. Fine print does not satisfy this requirement.
Record Retention & Penalties
| Document | Retention Period |
|---|---|
| General TILA disclosures | 2 years |
| Loan Estimate (LE) | 3 years |
| Closing Disclosure (CD) | 5 years |
Penalties for Noncompliance
| Violation Type | Penalty |
|---|---|
| Single violations | Up to $5,000/day |
| Reckless violations | Up to $25,000/day |
| Willful/knowing TRID violations | Up to $1,000,000/day |
High-Cost Mortgage Thresholds
HOEPA is Section 32 of Regulation Z. A loan is a high-cost mortgage if it meets ANY of these three triggers:
| Trigger | Threshold |
|---|---|
| APR Trigger — First lien | APR exceeds APOR by more than 6.5 percentage points |
| APR Trigger — Subordinate lien | APR exceeds APOR by more than 8.5 percentage points |
| Points & Fees Trigger | Total points and fees exceed 5% of loan amount (for loans ≥ $27,592 in 2026) |
| Prepayment Penalty Trigger | Penalty exceeds 2% of amount prepaid, OR charged more than 36 months after consummation |
Exemptions: HOEPA does NOT apply to reverse mortgages, initial construction loans, or USDA Section 502 Direct loans.
Prohibited Terms & Restrictions
Once a loan is classified as a high-cost mortgage, these features are strictly prohibited:
- No balloon payments (with limited exceptions for seasonal income)
- No negative amortization
- No prepayment penalties
- No advance payments (cannot consolidate more than 2 payments in advance)
- No increased interest rate after default
- No due-on-demand clauses (except for fraud or default)
Counseling Required: Before a high-cost mortgage can be originated, the borrower must receive written certification of homeownership counseling from a HUD-approved counselor.
HOEPA vs. HPML — Key Differences
| Feature | HOEPA (Section 32) | HPML (Section 35) |
|---|---|---|
| APR Trigger (1st lien) | > 6.5% above APOR | ≥ 1.5% above APOR |
| Counseling required? | ✅ Yes (mandatory) | ❌ No |
| Escrow required? | Not specifically | ✅ Yes (5 years min) |
| Appraisal required? | Not specifically | ✅ Yes (interior visit) |
| Balloon payments | ❌ Prohibited | Generally allowed |
| Prepayment penalties | ❌ Prohibited | Restricted but not banned |
HPML Definition & APR Thresholds
A Higher-Priced Mortgage Loan (HPML) is governed by Section 35 of Regulation Z.
| Loan Type | APR Threshold Above APOR |
|---|---|
| First-lien conforming loan | ≥ 1.5 percentage points |
| First-lien jumbo loan | ≥ 2.5 percentage points |
| Subordinate-lien loan | ≥ 3.5 percentage points |
Escrow & Appraisal Requirements
Escrow Requirement
- Creditors must establish an escrow account for property taxes and insurance before consummation
- Must be maintained for a minimum of 5 years
- After 5 years, borrower may request cancellation if LTV < 80% and borrower is not delinquent
Appraisal Requirement
- A written appraisal by a certified or licensed appraiser who conducts a physical interior visit is required
- A free copy must be provided to the borrower at least 3 business days before consummation
Second Appraisal Rule (Property Flipping)
A second appraisal at no cost to the borrower is required if the seller acquired the property within the past 180 days AND the purchase price is significantly higher:
- Acquired within 90 days: price is ≥ 10% higher than seller's acquisition price
- Acquired within 91–180 days: price is ≥ 20% higher than seller's acquisition price
Compensation Rules & Dual Compensation
MLO compensation rules are found at 12 CFR 1026.36(d). They were created to eliminate the practice of steering borrowers into more expensive loans for higher commissions.
| Permitted | Prohibited |
|---|---|
| Compensation based on loan amount (e.g., 1% of loan) | Compensation based on interest rate |
| Fixed salary or flat fee per loan | Compensation based on loan type (ARM vs. fixed) |
| Compensation from the lender (lender-paid) | Compensation based on APR, LTV, or prepayment penalty |
| Compensation from the borrower (borrower-paid) | Compensation based on any proxy for a loan term |
Dual Compensation is PROHIBITED: An MLO cannot receive compensation from both the consumer and another party (like the lender) on the same transaction. You get paid by one or the other — never both.
Steering Prohibition & Safe Harbor
An MLO is prohibited from steering a consumer to a loan that is not in the consumer's interest in order to increase the MLO's compensation.
Safe Harbor (Anti-Steering)
To avoid steering liability, the MLO must present loan options that include:
- The loan with the lowest interest rate
- The loan with the lowest rate without negative amortization, prepayment penalty, interest-only payments, or a balloon payment in the first 7 years
- The loan with the lowest total dollar amount of origination charges
Key Rule: An MLO's compensation cannot be reduced to offset a change in transaction terms (e.g., the MLO cannot take a pay cut to cover an unexpected fee increase).
Overview, Application & Loan Estimate
TRID replaced the Good Faith Estimate (GFE), HUD-1, and initial TIL statement with the Loan Estimate (LE) and Closing Disclosure (CD).
TRID Exemptions (Does NOT Apply To)
- HELOCs (open-end credit)
- Reverse mortgages
- Mortgages secured by mobile homes not attached to real property
- Lenders making 5 or fewer mortgages per year
The ALIENS Application Trigger
An application is received when the lender has all 6 of these pieces of information:
| Letter | Information |
|---|---|
| A | Address of the property |
| L | Loan amount sought |
| I | Income of the borrower |
| E | Estimated value of the property |
| N | Name of the borrower |
| S | Social Security Number (to pull credit) |
No Fees Before LE: No fees (except a bona fide credit report fee) may be charged before the LE is delivered and the borrower indicates intent to proceed.
Disclosure Timing Chart
| Disclosure / Rule | Timing |
|---|---|
| Loan Estimate (LE) delivery | Within 3 business days of application |
| LE must be available for | At least 10 business days (borrower's time to shop) |
| Earliest consummation after LE | 7 business days after LE delivery |
| Revised LE (after changed circumstance) | Within 3 business days of receiving new info |
| Last day to issue revised LE | No later than 4 business days before consummation |
| Closing Disclosure (CD) delivery | Borrower must receive CD at least 3 business days before consummation |
| Revised CD (new 3-day wait) | If APR changes, product changes, or prepayment penalty added |
| Tolerance cure deadline | Refund within 60 calendar days of consummation |
Fee Tolerances
| Category | Can Increase? | Examples |
|---|---|---|
| Zero Tolerance | ❌ Cannot increase at all | Origination fees, fees to lender/broker/affiliate, transfer taxes, fees for services borrower cannot shop |
| 10% Cumulative | ✅ Up to 10% aggregate increase | Recording fees, services where borrower shops from lender's written list |
| No Tolerance | ✅ Can increase by any amount | Prepaid interest, property insurance, escrow deposits, services from provider NOT on lender's list |
Common Trap: "No Tolerance" does NOT mean zero tolerance. It means the fees can increase by ANY amount — the opposite of zero tolerance!
Valid Changed Circumstances
A revised LE can only reset zero-tolerance or 10%-tolerance fees if there is a valid changed circumstance. There are exactly 3 categories:
| Category | Example |
|---|---|
| 1. Extraordinary event (Act of God) | Hurricane damages property after appraisal; title company goes out of business |
| 2. Information relied upon was inaccurate or changed | Appraisal comes in lower than estimated; borrower's income is different from stated |
| 3. New information not previously known | Title search reveals unknown tax lien; borrower takes on new debt after application |
NOT a Valid Changed Circumstance: An appraiser asking for more money, the MLO wanting to increase their fee, or any change within the lender's control.
HMDA & FCRA/FACTA
HMDA — Home Mortgage Disclosure Act (Regulation C)
- Requires lenders to collect and report demographic data on loan applicants
- Purpose: Uncover discriminatory lending (redlining) and monitor fair lending compliance
- Demographic data is collected in the Demographic Information section of the Uniform Residential Loan Application (URLA / Form 1003)
- Lenders submit a Loan/Application Register (LAR) annually
FCRA — Fair Credit Reporting Act (Regulation V)
- Regulates credit reporting agencies (Equifax, Experian, TransUnion)
- Consumers have the right to access, dispute, and correct their credit reports
- Lenders must provide adverse action notices when credit is denied based on a credit report
FACTA — Fair and Accurate Credit Transactions Act
- Amendment to FCRA focused on identity theft prevention
- Consumers entitled to one free credit report annually from each major bureau
- Consumers can place fraud alerts on their credit files
- Red Flags Rule (Section 114): Requires financial institutions to implement a written Identity Theft Prevention Program
BSA/AML & USA PATRIOT Act
Money Laundering Stages
| Stage | Description |
|---|---|
| Placement | Introducing illicit funds into the financial system |
| Layering | Moving funds through complex transactions to obscure origin |
| Integration | Using laundered money in legitimate transactions (e.g., buying real estate) |
BSA Reporting Requirements
| Report | Trigger |
|---|---|
| CTR (Currency Transaction Report) | Cash transactions exceeding $10,000 in one business day |
| MIL (Monetary Instrument Log) | Cash purchases of monetary instruments between $3,000–$10,000 |
| SAR (Suspicious Activity Report) | Suspected fraud/money laundering involving $5,000 or more; file within 30 days |
| FBAR (Foreign Bank Account Report) | US citizen/resident with foreign account aggregate value ≥ $10,000 |
USA PATRIOT Act — Customer Identification Program (CIP)
Requires financial institutions to verify the identity of anyone opening an account or applying for a loan. Must collect: name, date of birth, address, and identification number (SSN).
GLBA, HPA & Dodd-Frank
GLBA — Gramm-Leach-Bliley Act (SPF)
| Component | Requirement |
|---|---|
| Safeguards Rule | Written information security program to protect consumer data |
| Pretexting Provisions | Prohibits obtaining consumer info under false pretenses |
| Financial Privacy Rule | Clear & conspicuous privacy notice; consumer right to opt-out of sharing with non-affiliates |
HPA — Homeowners Protection Act (PMI Cancellation)
Applies to conventional loans only (not FHA or VA).
| Rule | LTV Threshold |
|---|---|
| Borrower-requested cancellation | When balance reaches 80% LTV (20% equity) — borrower must request it |
| Automatic termination | When balance is scheduled to reach 78% LTV — lender must terminate automatically |
| Final termination | At the midpoint of the amortization period (e.g., year 15 of a 30-year loan) |
Dodd-Frank Act (2010)
- Created the CFPB as the primary consumer financial regulator
- Established Ability-to-Repay (ATR) and Qualified Mortgage (QM) rules
- Amended HOEPA to expand high-cost mortgage protections
- Mandated TRID integrated disclosures
- Established strict MLO compensation rules
MAP Rule, E-Sign Act & Do-Not-Call
MAP Rule — Mortgage Acts and Practices (Regulation N)
Prohibits misrepresentation in any commercial communication about mortgage products. Violations include: implying government endorsement, advertising unavailable rates, hiding fees in fine print.
E-Sign Act
Electronic signatures and records have the same legal validity as paper. Before sending electronic disclosures, the consumer must affirmatively consent and demonstrate the ability to access electronic records.
Do-Not-Call Rules
| Situation | Allowed Call Period |
|---|---|
| Consumer makes an inquiry or submits an application | Up to 3 months |
| Consumer completes a transaction (e.g., closes a loan) | Up to 18 months |
| Calling hours | Between 8:00 a.m. and 9:00 p.m. in consumer's time zone |
CFPB — Consumer Financial Protection Bureau
The CFPB was created by the Dodd-Frank Act in 2010 as the primary federal regulator for consumer financial products.
Laws Enforced by the CFPB
| Law | Regulation |
|---|---|
| RESPA | Regulation X |
| TILA | Regulation Z |
| ECOA | Regulation B |
| HMDA | Regulation C |
| FCRA | Regulation V |
| GLBA | Privacy/Safeguards Rules |
Exam Trap: The Fair Housing Act is enforced by HUD, NOT the CFPB. The CFPB enforces credit-related laws; HUD enforces housing discrimination laws.
HUD — Department of Housing and Urban Development
HUD is a cabinet-level agency responsible for national housing policy and programs.
- Enforces the Fair Housing Act (prohibits discrimination in housing transactions)
- Oversees the Federal Housing Administration (FHA), which insures mortgages
- Approves HECM counselors for reverse mortgages
- Before the CFPB was created, HUD was the primary regulator for RESPA