 
Reviews
Wisconsin
Bookwatch (Oregon, WI USA)
Mortgages And Annuities
Yuri K. Shestopaloff
AKVY Press
142 Kennard Avenue, North York, ON, Canada, M3H 4M5
9780980966787, $57.95, www.amazon.com
"Mortgages and Annuities: An Introduction" by mathematician Yuri K.
Shestopaloff was specifically written and designed for undergraduate
students, their teachers, and financial industry specialists needing a
solid grounding in the mathematical foundations and computations
associated with the development, implementation, and interpretation of
financial investment instruments and their underlying formulas that are
commonly associated with the purchase of buildings and investments for
retirement. Informed and informative, "Mortgages and Annuities: An
Introduction" is replete numerical examples, exercises, and illustrative
problems making it especially appropriate as a curriculum textbook. Also
very highly recommended for professional and academic library reference
collections is Yuri K. Shestopaloff's "Mortgages And Annuities:
Mathematical Foundations And Computational Algorithms" (9780980966770,
$59.95). 
From the Publisher
The book content is
much based on the the previous study presented in the book "Science of Inexact
Mathematics", which received good reviews (see
reviews). So, the quality of
content
is commensurate. Besides, this book includes lots of problems and exercises and
numerical examples. 
Angel,
review from Amazon.com (5 stars)
I read another
book by this author, "Science of Inexact Mathematics", and wanted to get
more details on debt instruments. It worked for me. Lots of examples,
graphs, diagrams, problems and exercises make this book really a good
teaching and professional text. (It would be nice to somehow get the
answers to the problems.) I am not a novice in the business, but found a
lot of new things and concepts which financial analysts have to know and
understand. I would say that one will become fully comfortable with
mortgages and annuities after working through this book. Another good
thing is that the book starts from zero and almost effortlessly leads
one to progress to an expert level; the entire transformation is done
within two hundred pages. The book is easy to read and understand, and
does not require the knowledge of sophisticated mathematics. In reviews
of this book that I read, it was recommended for students. I also think
that professionals should not overlook this book. It covers the
fundamentals we need every day. 
MortgageOrb
(Interview with the author)
http://www.mortgageorb.com/e107_plugins/content/content.php?content.6027
Yuri K.
Shestopaloff Takes Mortgage Math To The Next Level
Phil Hall, Tuesday 08 June 2010  09:32:06
PERSON OF THE WEEK:
In reviewing the roots of the economic crisis, it would
not be flippant to question whether anyone involved in the mess 
borrowers, lenders and regulators  had the ability to understand basic
arithmetic.
Going forward, the next generation of mortgage bankers may have to
possess a better understanding of mathematical foundations and
computations relating to loan products. This week, MortgageOrb speaks
with Yuri K. Shestopaloff, author of the new book "Mortgages and
Annuities: An Introduction" (published by AKVY Press), to discuss the
role of computational algorithms and mathematical theories in reshaping
the industry.
Q: What was the inspiration for your new book?
Shestopaloff: I first discovered problems with algorithms that
are presently used in the financial industry when I was developing a
financial software application. First, I used software engineering tools
to improve system's performance. It helped, but I gradually realized
that the mathematics are far from perfect. So, I started research, found
a solution for that particular problem, published an article  then, the
solution led to an attempt to tackle another problem, and so on.
You should understand the nature of this industry and its principal
distinction from many other areas. In the aerospace industry, in which I
continue to do some research, the result can be easily verified. You
recognize or do not recognize some object, evaluate its parameters with
required accuracy or not  you hit the target or miss it.
In the financial industry, however, such verification is very limited.
For instance, there are many methods for computing the rate of return on
an investment. The fund manager, in fact, can use any method, and nobody
really knows which one is correct. Although there are some regulations,
they are not very confining. All of these methods used to be considered
to be independent.
In my earlier book, "Science of Inexact Mathematics," I proved that
these methods are approximations of one parent method, called the
internal rate of return (IRR), and showed what assumptions need to be
made in order to obtain each approximate method. This way, the hierarchy
of methods for computing rates of return was created, and their
interrelations were discovered and mathematically defined. I showed
limitations of the method that is supposed to be the industry standard
for certain financial institutions and funds  called timeweighted rate
of return  and I showed that this method generally produces the largest
error.
In other words, I established the foundation on which objective
valuation of rate of return and some other financial characteristics can
be reliably built. Still, some principal ambiguities were present, but
they were exposed, and some reasonable compromise solutions were found.
Q: But wouldn't it be fair to say that a good degree of ambiguity
plays into the loan origination process? How can you answer that with
mathematical equations?
Shestopaloff: Mortgagerelated mathematics has slacks and
ambiguities that can be used by either side  lender or borrower 
although the lender is usually more knowledgeable. The difference in
total payment amount can be several percent and, in some instances,
more. I really would like people to know these details when they think
about borrowing or lending money, as well as to understand all
implications and mechanisms of quick debt accumulation, when they deal
with compounding, which is usually the case in the lending business.
Another thing I wanted to show is that mortgages and annuities can be
arranged in a very flexible way to tailor the needs of the borrower and
the lender to a particular situation. It was shown that a mortgage
equation can be directly derived from the same IRR equation. Therefore,
it can be used as the basis for any fancy mortgage, as well as for any
mortgage reconfiguration and restructuring when there is a need.
This approach delivers a very powerful instrument, but this is a
doubleedged sword. Rightly used, it could easily help the majority of
people to avoid foreclosures, but it can also provoke bankruptcy,
depending on the original purpose.
Q: Your book is different from other books about mortgages and
annuities because it covers computational algorithms. Why is it
important for mortgage bankers to have a strong knowledge of
computational algorithms?
Shestopaloff: In my experience, mortgages and other investment
vehicles are processed by software applications. When I consult system
designers and programmers developing these applications, one of my
duties is to tell them what mathematical and computational algorithms to
use. I am trying to follow industry conventions, but the choice is not
always unique  far from that. When I am trying to discuss the problem
with clients, I often discover that they have a vague idea, if any, of
what I am trying to convey, until I explain all the nuances.
For instance, one can compute the interest rate for shorter periods
using the compounding or noncompounding approach, continuous or
discrete, and so on. If mortgage brokers and software developers
understood what kind of enormous flexibility they could have if they
used the IRR equation as the basis for their computations, then many
foreclosures could be avoided.
One more reason: The interest rate cannot be computed directly, the
appropriate equation is solved numerically. Having efficient
computational algorithms makes routine computations and analytical
studies go a lot faster. In general, equations of this type have
multiple solutions. Finding the right one requires knowledge of
algorithms.
Q: Many people have blamed the push for loan quantity over loan
quality as driving the crash of the U.S. mortgage banking industry. Is
it possible that an absence of mathematical analysis contributed to the
crisis that faced the U.S. mortgage banking industry during the past two
years?
Shestopaloff: Any real phenomenon is defined by many factors. The
mortgage market is only one factor in the whole picture. One should also
look at the source of money and its stability. In that case, much
instability and the resulting problems came from uncontrolled and
unfounded monetary emissions.
The next "money producing well" was collateralized debt obligations and
all the associated manipulations, such as repackaging, offbalancesheet
assets, involvement of international funds, etc.  all of these things
worked as a powerful money printing machine. In such a situation, it is
difficult to understand how much money is actually in the economy.
In fact, money is nothing  it is a phantom. People forget that money is
the measure of wealth, but not the wealth itself. Any misbalance between
the measure and the real thing causes problems sooner or later.
However, mathematical analysis could at least expose all consequences of
lending a certain amount of money to population with known assets and
incomes. Such analysis could also predict the price increase in the
housing market, region by region, based on historical data and
simulation models, when you know how much money was lent to home buyers
and how many building permits were issued. Based on this data, it is
possible to evaluate the dynamics of creditworthiness of a population.
If such an analysis were to be done and be widely exposed to the public,
it could somehow influence the mortgages' quality. In the borrowing
spree, it would probably not influence it much. However, the data was
there, and we could have made the right inferences.
this content item is from Mortgage Orb
http://www.mortgageorb.com/e107_plugins/content/content.php?content.6027

Interactive
Computer Corporation (www.iccdocs.com)
Newsletter, June,
2010
A THEORETICAL
UNDERSTANDING OF MORTGAGE MATHEMATICS
Interactive Computer Corporation gained recognition in part for its
great customer service and the “can do” philosophy of its founder,
Midwest banker Michael “Mike” Straziuso. The other part was being able
to compute some of the most complex mortgage loan programs, limited only
by the imagination of the mortgage marketing gurus at some of the most
wellknown and respected lenders. Many lenders used ICC as their test
lab, both for document development and for providing a test platform for
mortgage computations. For those seeking a background in the subject of
mortgage mathematics, we rarely recommend anything other than a “how to”
calculator course to allow even relatively unsophisticated loan
officers, brokers and lenders to compute their own APRs and cash flows.
Today, we
are privileged to recommend a more theoretical book, “Mortgages and
Annuities: An Introduction” by a renowned mathematician, Yuri
Shestopaloff. But before we proceed further with the review of this fine
book, we must warn you that the material is presented at the
collegelevel and the book reads like a textbook on specialized mortgage
mathematics. There are mathematical formulas which require some
knowledge of calculus at the college level. This book is not for
everyone, but should be required reading for mortgage and data
processing professionals who want to know more about the computations
behind mortgages and annuities. The author is quick to point out that
mortgages are “just another subset of financial instruments whose
quantitative description is based on the IRR (Internal Rate of Return)
equation. Understanding the IRR and the various methodology of its
computation is the key to understanding this book and its approach to
mortgages and annuities. The author notes that there are ambiguities in
the methodology to calculate the Internal Rate of Return which may
concede an advantage to either the borrower or the lender, depending on
which methods are used in the calculations. Knowing which algorithms to
use in calculating APRs and projected cash flows is as important as
knowing the creditworthiness of the borrower. "Mortgages and Annuities:
An Introduction” contains a number of numerical examples, exercises, and
illustrative problems which should serve the professional well in aiding
in their understanding of the subject material. And other than the
mathematical underpinning of the text, the author takes you from a zero
understanding of the subject material to an expert level almost
effortlessly. This is not a reference book per se, but a “core
foundation” book that should be in every professional’s library. And,
unfortunately, like most college textbooks, the answers to the work
problems at the end of the chapter are not provided. However, it is well
worth your time and effort to master its subject matter.
More
information can be found at
http://www.akvypress.com/mortg_intro/book.html

