Title insurance is also encouraged on second mortgage loans. The index used to establish the rate for adjustable rate loan programs should be acceptable to secondary markets and appropriate to the type of loan granted. Use of internal indexes for adjustable rate loans are normally not acceptable to secondary market investors or consumers. Finally, margins over the index should be acceptable to the secondary market. Loans should be limited to those which finance the acquisition and construction of a member's principal residence.
Construction involves the risks associated with the uncertainties of building.
These loans carry a higher risk of default and, therefore, entail more extensive underwriting and administration than financing completed homes. The members' funds should be used before disbursing the proceeds of the loan. On-site inspections should be made only by qualified individuals, such as the original appraiser, independent of the underwriting function of the credit union. Residential real estate loans are subject to a number of special provisions concerning consumer protection. These include requirements of the Home Mortgage Disclosure Act, the Truth in Lending Act, the Equal Credit Opportunity Act, the Fair Housing Act, the Fair Credit Reporting Act, the Flood Disaster Protection Act and the Real Estate Settlement Procedures Act, including the recent disclosure provisions regarding a change in loan servicers.