Chapter 16 · National foundations
Federal Lending and Consumer-Protection Laws
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Match the law to the problem
TILA Truth in Lending Act, addressing covered credit disclosure and consumer protections. See Chapter 16. Glossary, the Truth in Lending Act, and Regulation Z address covered consumer-credit disclosures and protections. RESPA Federal law addressing covered settlement and mortgage-servicing practices. See Chapter 16. Glossary, the Real Estate Settlement Procedures Act, and Regulation X address covered settlement and servicing practices. ECOA The Equal Credit Opportunity Act, governing specified credit discrimination. See Chapter 16. Glossary, the Equal Credit Opportunity Act, addresses credit discrimination. FCRA The Fair Credit Reporting Act, governing consumer reports and specified uses and notices. See Chapter 16. Glossary, the Fair Credit Reporting Act, addresses consumer-report information and its use. A transaction can involve several of these laws, but each law has its own coverage and exceptions. S28 S29 S30 S41
Interest rate, finance charge, and APR
The note rate is the contractual interest rate applied to the loan balance. The finance charge includes specified costs of credit under the law. The annual percentage rate, or APR Annual percentage rate, a legally defined annualized expression of covered credit cost. See Chapter 16. Glossary, expresses the cost of covered credit on an annualized basis using required Assumption Taking responsibility for an existing loan under the governing arrangement. See Chapter 15. Glossary and included charges. APR is not necessarily identical to the note rate. It cannot generally be calculated by adding every closing fee to the interest percentage. S28 S32
A Discount point One percent of the loan amount as a financing charge unit. See Chapter 16. Glossary equals 1% of the loan amount. Paying points may reduce a rate under a lender's pricing arrangement, but there is no universal rule that one point always buys a particular rate reduction. Compare the actual terms.
TRID: Loan Estimate and Closing Disclosure
For most covered closed-end consumer mortgages secured by real property, the integrated-disclosure system uses a Loan Estimate The integrated three-page estimate for covered mortgage transactions. See Chapter 16. Glossary, or LE, and Closing Disclosure The integrated five-page disclosure for covered mortgage transactions. See Chapter 16. Glossary, or CD. Certain transactions, including reverse mortgages and HELOCs, use different requirements. Do not assume the same forms apply to every loan. S26 S27
The LE is a three-page disclosure generally provided or placed in the mail within three business days after a covered application. Receipt of the six specified items ordinarily establishes an application for this purpose: consumer name, income, Social Security number or permitted equivalent used to obtain a credit report, property address, estimated property value, and loan amount sought. A lender cannot postpone the disclosure clock simply by demanding additional underwriting documents first. An LE is not a loan approval. S26 S55
The CD is a five-page disclosure that the consumer must generally receive at least three business days before Consummation Becoming contractually obligated on a credit transaction under applicable law. See Chapter 16. Glossary. Consummation means becoming contractually obligated on the credit transaction under applicable law, not necessarily moving in, Recording Placing an instrument in the authorized public record system. See Chapter 7. Glossary the Deed An instrument used to convey an interest in real estate. See Chapter 7. Glossary, or the settlement agent's chosen appointment label. S27 S55
Two business-day definitions matter. The initial LE delivery deadline generally uses days on which the creditor is open for substantially all business functions. The CD waiting period uses all calendar days except Sundays and specified federal legal public holidays; Saturdays ordinarily count. Mailing and receipt Assumption Taking responsibility for an existing loan under the governing arrangement. See Chapter 15. Glossary add separate timing issues. Other timing requirements, including the general seven-business-day LE waiting period before consummation, must also be satisfied. S28 S55
A corrected CD does not always restart the three-day waiting period. The Principal In agency, the represented client; in finance, the loan balance apart from interest. See Chapter 8, Chapter 15. Glossary restart triggers are an APR Annual percentage rate, a legally defined annualized expression of covered credit cost. See Chapter 16. Glossary becoming inaccurate under the regulation's tolerance rules, a change in loan product, or addition of a prepayment penalty. Other corrections may be handled without a new waiting period if the applicable requirements are met. Do not use “any changed fee” as a universal restart rule. S28
Timing example
Assume actual receipt of a required CD on Monday, no federal holidays, and every other applicable timing rule is already satisfied. Tuesday, Wednesday, and Thursday provide the three-business-day sequence, allowing consummation Thursday. Do not count a three-day Rescission Undoing a transaction under a recognized legal or contractual right. See Chapter 10, Chapter 16. Glossary period after every purchase closing; that is a different rule.
Closing-cost tolerance concepts
TRID The TILA-RESPA integrated-disclosure framework for covered mortgage transactions. See Chapter 16. Glossary distinguishes charges that generally cannot increase without a permitted basis, categories subject to a 10% aggregate tolerance, and categories allowed to vary when estimated in good faith under the applicable rule. Creditor or affiliate charges and transfer taxes are examples associated with the strict category. Recording Placing an instrument in the authorized public record system. See Chapter 7. Glossary fees and certain required services for which the consumer is allowed to shop can fall within the aggregate category when the rule's conditions are met. Prepaid interest, property insurance, Escrow Holding funds or documents subject to authorized conditions. See Chapter 17. Glossary deposits, and certain consumer-selected services are treated differently. A valid changed circumstance can affect whether a revised estimate establishes a new baseline.
The important exam lesson is that 10% is not a universal cap on every closing cost, and an aggregate tolerance is not necessarily a separate 10% allowance for each item. Determine the service, provider relationship, shopping choice, and permitted revision before applying a number. S28
The right of rescission
Certain nonpurchase credit transactions secured by a consumer's Principal In agency, the represented client; in finance, the loan balance apart from interest. See Chapter 8, Chapter 15. Glossary dwelling carry a TILA Truth in Lending Act, addressing covered credit disclosure and consumer protections. See Chapter 16. Glossary right of Rescission Undoing a transaction under a recognized legal or contractual right. See Chapter 10, Chapter 16. Glossary. The ordinary period runs until midnight of the third business day after the latest of Consummation Becoming contractually obligated on a credit transaction under applicable law. See Chapter 16. Glossary, delivery of the required rescission notice, or delivery of required material disclosures. Sundays and specified federal legal holidays are excluded; Saturdays generally count.
A standard loan used to acquire the principal dwelling is not subject to this general rescission right merely because it is a mortgage. Other exclusions and extended rights can apply. A purchase-contract cancellation clause, a lead inspection opportunity, and TILA rescission are three distinct concepts. S31
RESPA and referral arrangements
RESPA Federal law addressing covered settlement and mortgage-servicing practices. See Chapter 16. Glossary Section 8 prohibits specified kickbacks and things of value for settlement-service referrals involving federally related mortgage loans, and certain splits of charges where services were not actually performed. A payment's label—marketing fee, gift, consulting fee—does not determine legality.
Payment for actual services at appropriate value can be lawful, and the law contains specific exceptions, including certain Cooperative An ownership arrangement commonly involving shares and associated occupancy rights. See Chapter 4. Glossary brokerage arrangements. An affiliated-business arrangement has requirements; ownership disclosure alone does not legalize every referral payment or required use. There is no universal small-dollar gift amount that automatically makes a referral kickback lawful. S29
Credit discrimination and consumer reports
ECOA The Equal Credit Opportunity Act, governing specified credit discrimination. See Chapter 16. Glossary's statutory protections include race, color, religion, national origin, sex, marital status, age when the applicant has capacity, receipt of public-assistance income, and good-faith exercise of rights under the Consumer Credit Protection Act. Legitimate underwriting evaluates creditworthiness under lawful rules, not stereotypes about protected groups. S30
FCRA The Fair Credit Reporting Act, governing consumer reports and specified uses and notices. See Chapter 16. Glossary issues arise when consumer reports inform housing decisions. A landlord who denies an application or imposes less favorable terms based wholly or partly on a consumer report generally must provide an appropriate adverse-action notice. Higher deposits or a required guarantor can be adverse actions, not only outright denial. The reporting Agency An authorized relationship in which an agent acts on behalf of a principal. See Chapter 8. Glossary did not make the landlord's decision. S41
Other lending concepts
Recognize ability-to-repay, qualified mortgage, high-cost-loan protections, mortgage-originator licensing or registration, and Appraisal An opinion of value developed for a defined assignment. See Chapter 14. Glossary independence as distinct regulatory subjects. A real estate License In property use, permission distinct from an estate; in professional regulation, authorization to practice. See Chapter 5, Chapter 19. Glossary is not automatic authority to perform all mortgage-originator activities. A qualified mortgage is not a promise that a borrower will never default. Loan flipping, false application information, inflated appraisals, and deceptive terms raise serious legal concerns. Current federal and state rules, exemptions, and transaction coverage must be checked. S28 S55 S59
An agent advertises a specific covered credit down payment or payment amount. Is that always just ordinary property advertising?