Which federal act requires lenders to provide borrowers with a Good Faith Estimate and Truth-in-Lending disclosure for mortgage loans (pre-TRID, still relevant for HELOC and reverse mortgages)?
Why RESPA and TILA Is Correct
Answer A: RESPA and TILA
Regulation X, which implements RESPA, requires a lender to give a loan applicant a Good Faith Estimate within three business days of application (12 CFR 1024.7). The same section ties to the Truth in Lending Act and Regulation Z: for a home-equity line of credit, a lender that gives the 12 CFR 1026.40 TILA disclosures at application is deemed to satisfy the GFE requirement. RESPA and TILA are therefore the federal laws behind these disclosures. The stem's HELOC wording is imprecise.
Exam Tip: Finance
Finance questions often involve calculations. Master the T-bar method, understand the difference between conventional and government-backed loans, and know key ratios like LTV and DTI.
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Key Terms to Know
Insurance required by lenders on conventional loans with less than 20% down payment, protecting the lender — not the borrower — against default.
Loan-to-Value Ratio (LTV)The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.
AmortizationThe gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.
Adjustable-Rate Mortgage (ARM)A mortgage with an interest rate that changes periodically based on a financial index, usually after an initial fixed-rate period.
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