If you originate or hold private mortgage notes, your TILA and RESPA exposure depends on your loan structure, the borrower’s intended property use, and whether your transaction meets federal applicability thresholds. The 15 terms below identify where statutory requirements bind you and where voluntary compliance protects your note’s value either way.

Federal disclosure law is not a monolith. TILA and RESPA each carry separate triggers, exemptions, and penalties — and they interact in ways that catch private lenders off guard. A seller-financed note on an owner-occupied residence faces a different compliance profile than a note secured by an investment property. Knowing the vocabulary is the starting point for structuring deals that hold up.

TILA (Truth in Lending Act)

The Truth in Lending Act requires lenders to disclose key credit terms before consummation of a loan, using standardized formats that allow borrowers to compare offers. Its core requirements — accurate Annual Percentage Rate disclosure and itemized finance charges — apply most broadly to loans secured by a consumer’s dwelling. Private lenders and seller financiers whose notes are secured by owner-occupied residential property need to understand when TILA applies and what disclosures it mandates before the loan closes.

RESPA (Real Estate Settlement Procedures Act)

RESPA governs the settlement process for federally related mortgage loans and regulates mortgage servicing throughout the life of covered loans. Its prohibitions on kickbacks, unearned fees, and undisclosed referral arrangements apply regardless of loan size or lender type when a loan meets the federal nexus test. RESPA’s servicing rules — covering escrow accounts, transfer notices, and borrower error-resolution requests — are where private mortgage servicers face the most day-to-day compliance exposure.

Loan Estimate (LE)

The Loan Estimate is a standardized three-page disclosure that itemizes the estimated interest rate, projected monthly payment, and closing costs for a covered mortgage application. TRID rules require a lender to deliver the LE within three business days of receiving an application for a covered loan. For private lenders originating notes that fall under TILA, the LE is mandatory. For transactions outside TILA’s reach, issuing an equivalent summary document is best practice — it sets clear expectations and reduces disputes at closing. See also: 9 disclosure traps that catch private mortgage lenders.

Closing Disclosure (CD)

The Closing Disclosure is a five-page form presenting final loan terms, itemized closing costs, and projected monthly payments. On covered transactions, it must reach the borrower at least three business days before closing, giving them time to compare final figures against the Loan Estimate. On private notes not subject to TRID, a comprehensive final settlement statement serves the same function — documenting all agreed terms before signatures and heading off post-closing disagreements about what was promised.

Ability to Repay (ATR) Rule

The ATR rule requires mortgage lenders making covered residential loans to determine, in good faith, that the borrower has a reasonable ability to repay before extending credit. Lenders must evaluate eight defined factors: income, assets, employment status, credit history, the monthly payment on the covered loan, monthly payments on simultaneous loans, mortgage-related obligations, and current debt obligations. Even when a private note falls outside the ATR rule’s scope, documenting the same analysis protects against predatory lending claims and reduces default risk — both of which directly affect the long-term value of the note.

Qualified Mortgage (QM)

A Qualified Mortgage is a loan class with defined features that grants the originating lender a presumption of ATR compliance. QM loans cannot include interest-only periods, negative amortization, balloon payments (with limited exceptions), or terms exceeding 30 years, and generally must meet a debt-to-income threshold. Private lenders are not required to originate QMs, but structuring a note to meet QM standards can reduce regulatory risk, simplify note sales to secondary market buyers, and signal responsible underwriting discipline to outside investors reviewing the portfolio.

High-Cost Mortgage (HCM)

A High-Cost Mortgage is a loan whose APR, points and fees, or prepayment penalty exceeds HOEPA thresholds at origination. Classification as an HCM triggers mandatory pre-loan counseling, prohibitions on balloon payments and prepayment penalties in most cases, and enhanced borrower remedies for violations. Private lenders and seller financiers must calculate APR and total fees before closing to determine whether a proposed loan crosses any HOEPA threshold — because an unintentional HCM classification carries significant liability exposure. See also: 5 TILA/RESPA mistakes in private seller financing.

Higher-Priced Mortgage Loan (HPML)

A Higher-Priced Mortgage Loan is a closed-end consumer credit transaction secured by the borrower’s principal dwelling where the APR exceeds the Average Prime Offer Rate (APOR) by defined thresholds — generally 1.5 percentage points for first-lien loans. HPML status triggers mandatory escrow account requirements for property taxes and insurance for at least five years and imposes specific appraisal requirements. Private lenders should run the APOR comparison on any owner-occupied first-lien note to determine whether HPML requirements apply before the loan closes.

Expert Take

The HCM and HPML thresholds are frequently treated as redundant. They are not. HPML is triggered by rate spread alone and attaches servicing requirements — specifically the mandatory escrow obligation. HCM is triggered by rate spread, fees, or prepayment penalties and attaches origination restrictions and enhanced borrower rights. A note can be an HPML without being an HCM. Checking both before closing is non-negotiable on owner-occupied loans, and the calculations need to be documented in the loan file.

Servicing Transfer Notice

When mortgage servicing transfers from one entity to another on a covered loan, RESPA requires both parties to send the borrower written notice. The transferring servicer’s notice is due at least 15 days before the transfer effective date; the receiving servicer must send its notice within 15 days after the transfer. During the 60-day window following an effective transfer, borrowers may not be charged a late fee for misdirected payments sent to the prior servicer. Private lenders who sell notes or engage a third-party servicer must build servicing transfer notice compliance into their boarding process from the start. See also: 7 things that happen to your note when you transfer loan servicing.

Annual Escrow Statement

RESPA requires servicers administering escrow accounts to provide borrowers with an annual escrow account disclosure statement within 30 days of the end of the escrow computation year. The statement accounts for all disbursements made on the borrower’s behalf during the prior 12 months and projects anticipated disbursements for the coming year. For private mortgage servicers managing escrow accounts for taxes and insurance, the annual statement is a mandatory communication that also reduces borrower disputes — borrowers who understand their escrow position ask fewer questions and escalate fewer complaints. See also: escrow account setup for private mortgage notes and the escrow disbursement process.

Force-Placed Insurance

Force-placed insurance — also called lender-placed insurance — is hazard coverage a servicer obtains on behalf of a borrower who has failed to maintain required property insurance or has not provided proof of an active policy. RESPA sets specific procedural requirements: the servicer must send the borrower at least two notices with a 30-day minimum gap between them before purchasing coverage, and must cancel force-placed coverage within 15 days of receiving proof of the borrower’s own insurance. Private mortgage servicers must follow these notice and cancellation timelines precisely — failure to do so creates statutory liability and borrower remedies. See also: 5 hazard insurance mistakes that put lenders at risk.

Predatory Lending

Predatory lending describes a cluster of origination practices — high-pressure sales tactics, undisclosed fee structures, loan terms designed to strip equity, or qualifying borrowers for loans they lack the ability to repay — that benefit the originator at the borrower’s expense. TILA’s disclosure requirements and the ATR rule exist largely to create structural barriers against these practices. For private lenders, the risk extends well beyond regulatory exposure: a note tainted by predatory origination can be challenged in borrower bankruptcy, subjected to rescission claims, or become unsaleable to note buyers conducting due diligence. Clean origination practices protect the note’s value, not just its compliance standing.

Qualified Written Request (QWR)

A Qualified Written Request is a written correspondence from a borrower to a mortgage servicer disputing a specific servicing error or requesting specific account information. RESPA requires servicers to acknowledge a QWR within five business days and to respond substantively — correcting the identified error or providing the requested information — within 30 business days, extendable to 45 days in specified circumstances. Penalties for non-compliance include actual damages, statutory damages, and attorney’s fees. Private mortgage servicers must have a documented intake and tracking process so no QWR misses a deadline. See also: 10 private mortgage servicing pitfalls and solutions.

Private Mortgage Servicing

Private mortgage servicing is the ongoing administration of a private mortgage note after origination: collecting and applying scheduled payments, maintaining accurate payment histories, managing escrow disbursements, handling borrower communications, processing payoffs and partial releases, and maintaining regulatory compliance throughout the loan term. Effective servicing protects note value, preserves borrower relationships, and builds the documentation trail required if default, workout, or note sale becomes necessary. Professional third-party servicers bring operational infrastructure and compliance knowledge that most individual note holders cannot sustain internally at scale. See also: 10 real examples of what professional servicing really does.

Seller Financing

Seller financing — also called owner financing or a seller carryback — occurs when a property seller extends credit directly to the buyer, accepting a promissory note secured by a deed of trust or mortgage in place of immediate cash payment. The buyer makes scheduled payments of principal and interest directly to the seller. TILA and RESPA exemptions for seller-financed transactions are fact-specific: they depend on the number of seller-financed transactions completed in a 12-month period, whether the seller is a natural person or an entity, and the property type. Sellers who fall outside available exemptions must comply with the same disclosure rules as institutional lenders. See also: 7 seller financing pitfalls for private lenders and 7 essential documents for a seller carryback transaction.

TILA and RESPA compliance is not a uniform checklist — it is a set of fact-specific determinations that shift based on who originates the loan, what property secures it, how it is structured, and how it is serviced over time. Private lenders and seller financiers who understand these terms before they close notes are better positioned to structure compliant transactions and avoid the documentation gaps that complicate note sales and generate borrower disputes. Note Servicing Center handles compliance servicing for private mortgage notes — contact us to discuss your portfolio.