Lending Regulations and Fair Lending: ECOA, TILA, HMDA, RESPA, and Flood
This domain tests consumer and mortgage lending rules plus fair lending risk. Expect questions on adverse action, disclosures, high-cost mortgage protections, HMDA data, RESPA prohibitions, flood insurance, and disparate treatment or impact.
Core rules
- ECOA and Regulation B prohibit discrimination and require adverse action notices, generally within 30 days after a completed application. Reasons must be specific and accurate.
- TILA and Regulation Z require finance charge and APR disclosures, tolerance rules, high-cost mortgage protections, and escrow and appraisal requirements for higher-priced mortgage loans.
- HMDA and Regulation C require collection and reporting of application, loan, demographic, and pricing data for covered loans.
- RESPA and Regulation X prohibit kickbacks and unearned fees under Section 8 and impose disclosure and servicing rules; TRID requires a Loan Estimate and Closing Disclosure with timing and tolerance rules.
- Flood rules require determination, notice, and sufficient insurance before closing for improved property in a special flood hazard area.
- Fair lending covers disparate treatment and disparate impact; redlining, steering, pricing, and marketing can create risk.
Worked example
An applicant is denied a mortgage because of excessive debt-to-income ratio. The bank must send an adverse action notice within 30 days after the completed application, stating specific principal reasons such as “debt-to-income ratio exceeds program limit,” not “credit risk.” If the bank makes a counteroffer at a lower amount and the applicant does not accept it, the file may require an adverse action notice. Reasoning: vague reasons frustrate the applicant and weaken the bank’s fair lending defense; file documentation must match the notice and the actual decision.
Traps that cost marks
- Using “credit score” alone as a reason instead of the specific factors and score disclosure required.
- Missing adverse action timing when a counteroffer is declined.
- Reporting HMDA data inconsistently with the loan file.
- Treating a marketing services agreement as safe without testing whether it pays for referrals.
- Assuming fair lending only applies to denied applications; pricing and steering also matter.
Exam focus
Match the rule to the product and stage: application, disclosure, decision, closing, servicing, and reporting.