This chapter addresses the key functions needed to support an efficient primary mortgage market property appraisal; mortgage-related insurance products, including catastrophic insurance against earthquake and flood; and assistance with credit risk assessment via credit bureau information. The successful development of these support functions and of a sound mortgage market is mutually supportive. For example, the increasing sophistication of the appraisal industry both responds to and supports, a growing primary market. Similarly, the demand for property insurance is a function of a growing mortgage market that enables insurers to achieve diversification and scale economies and offer reasonably priced products. As these support functions help to measure and share the risks, they shape the evolution of primary mortgage markets (needed before developing secondary mortgage markets) and they facilitate the penetration of housing finance markets through lower-income groups.

Yet, these support functions do not represent absolute prerequisites for would-be candidate lenders, as demonstrated by the Housing Development Finance Corporation (HDFC)—a pioneer and now leader of housing finance. in India—which went forward without any of these supports in place (plus the critical lack of long-term funding, and of any enforceable foreclosure). An effective appraisal process is arguably the most important of these functions. Th e accuracy of the valuation, through its impact on loan-to-value (LTV); the level of property insurance; and the validity of higher- or lower-risk weight assignments ultimately impacts credit risk, collateral risk, capital charges for banks, and improved affordability for the borrower. Building a credible appraisal industry, however, is demanding and takes time. Credit bureau reports on borrower debt and loan repayment history are crucial inputs to determining credit risk through both the debt-to-income ratios and knowledge of past repayment behavior. Many emerging markets have trouble convincing leading market lenders and other suppliers of credit that information sharing is beneficial to all. Moreover, of course, newly established markets require time to develop credit histories and other information that ultimately offers the benefits of a full-service credit bureau.