Introduction to the Closing Disclosure (CD)
The Closing Disclosure (CD) is a critical five-page document that provides final details about the mortgage loan a borrower has selected. It includes the loan terms, projected monthly payments, and precisely how much the borrower will pay in fees and other costs to get the mortgage and close the transaction.
For those preparing for the complete Title Insurance exam guide, understanding the CD is essential because it is the primary document where title-related fees are disclosed to consumers. The CD was created as part of the TILA-RESPA Integrated Disclosure (TRID) rule, often referred to as "Know Before You Owe." This rule combined several older disclosures into the Loan Estimate (LE) and the Closing Disclosure to ensure transparency and prevent bait-and-switch tactics regarding closing costs.
Locating Title Fees on the CD
Title insurance fees and settlement charges are primarily located on Page 2 of the Closing Disclosure under the heading "Closing Cost Details." This page is divided into two main sections: Loan Costs and Other Costs.
- Section B (Services Borrower Did Not Shop For): If the lender selected the title company and did not allow the borrower to shop, the title fees appear here.
- Section C (Services Borrower Did Shop For): This is where most title fees are found. If the borrower was permitted to shop for title services and selected a provider from the lender’s written list or their own choice, the fees are listed here.
- Section H (Other): The Owner’s Title Insurance premium is uniquely placed in Section H under "Other Costs," rather than with the lender’s title fees in the Loan Costs section.
For practice identifying these sections, you can review practice Title Insurance questions to see how they appear in exam scenarios.
Loan Estimate vs. Closing Disclosure Tolerances
| Feature | Fee Category | Tolerance Level | Title Fee Examples |
|---|---|---|---|
| Zero Tolerance | Cannot increase at all | Title fees paid to an affiliate of the lender | |
| 10% Cumulative Tolerance | Total sum cannot increase by more than 10% | Title services where borrower used lender's recommended list | |
| No Tolerance Limit | Can change based on actual cost | Title services where borrower chose a provider NOT on lender's list |
The 'Title -' Prefix Requirement
One of the most specific requirements of TRID for title professionals is the naming convention of fees. To ensure that consumers can easily identify all costs related to title insurance and settlement, every fee associated with the title company must be preceded by the phrase "Title -".
Examples of proper disclosure include:
- Title - Settlement Agent Fee
- Title - Search and Examination Fee
- Title - Lender’s Title Insurance
- Title - Notary Fee
These fees must also be listed in alphabetical order within their respective sections on the CD. This standardization prevents title companies from using obscure terminology to hide fees and allows for a direct comparison between the initial Loan Estimate and the final Closing Disclosure.
The Simultaneous Issue Calculation
When both an Owner's Policy and a Lender's Policy are issued at the same time, it is known as a simultaneous issue. However, the TRID rule requires a specific (and often confusing) way of disclosing these premiums on the CD. The Lender’s Policy must be disclosed at the full premium rate (undiscounted), while the Owner’s Policy is disclosed as the full Owner's premium plus the simultaneous issue secondary rate, minus the full Lender's premium. This often results in the Owner's Policy appearing cheaper on the CD than it actually is in reality.
CD Compliance Quick Facts
The Three-Day Rule and Title Changes
The borrower must receive the Closing Disclosure at least three business days before consummation (signing the note). This waiting period is intended to give the borrower time to review the final numbers and compare them to the Loan Estimate.
If there are significant changes to the title fees that exceed the 10% cumulative tolerance (for services the borrower shopped for using the lender's list), the lender may be required to provide a credit to the borrower to cure the variance. Small changes to title fees typically do not trigger a new three-day waiting period, but three specific changes do require a new CD and a new three-day wait: 1) An increase in the APR by more than 1/8 of a percent, 2) The addition of a Prepayment Penalty, or 3) A change in the Loan Product.