FHA LTV Cutoff Confusion

by Michael Shohoney February 10, 2009 09:17
Lately we've fielded a lot of calls and emails questioning where the ZMath Engine, eZMath and ZMath cutoff FHA MIP premiums.  Universally, the inquirer states that we are cutting off the MIP too early.  Invariably what is going on is that there is financed premium involved.  For that reason, the calculation of the cutoff is not as straight forward as calculatiing the percentage of the loan's balance and looking at the amortization schedule for that balance.  No, the calculation is quite a bit more involved than that.  Apparently, there are a few LOS and underwriting systems out there that do not do this correctly!  For that reason, we will not go into the specifics of the correct calculation.  Rest assured, we have it correct here in all of our software.  So, if you're questioning your results, contact us and we will share with you why we are right and why your other system is falling short or should we say long of the correct result!

The Case for Reverse Mortgages

by Michael Shohoney February 2, 2009 10:38

It seems to us that the time is ripe for reverse mortgages.  Why?  Because it allows your customers to benefit from their most valuable asset.  It also helps them avoid liquidating other under-valued assets to supplement dwindling income due to the current financial crisis.  When you look at most of your retirement-aged customers, what one asset do they have that their heirs probably don't want to have to deal with in the future?  Most likely their home.  At the same time, assuming that stocks and other financial assets will recover lost value over time, it makes sense to hold those assets rather than liquidate them at these depressed prices in order to supplement income.  Additionally, stocks, securities and other financial assets are easier for heirs to deal with when the time comes.

There is general confusion and hesitation when it comes to reverse mortgages.  Many of the people that would benefit from this instrument do not understand the benefits nor the mechanics.  Many believe that it is possible for them to lose their home before they want to leave it.  Or they believe that they are not getting fair value from it.  Also, given the bad press that the mortgage industry has suffered through the past number of months, they are suspicious of anything that is unfamiliar to them.  Well, it is time for you to sit down with those potential clients and explain the benefits of this truly creative and valuable financial instrument.  You may just find that you have a number of originations just waiting to happen.

Don't Want to Implement a Component but want the ZMath Engine?

by Michael Shohoney January 29, 2009 10:55

From time to time, we find customers that for one reason or another do not want to implement a component into their system but would still like to leverage the prowess of the ZMath Engine.  Well, for people like that we've got a new method of access; a RESTful web service.  What is a RESTful web service?  (I too had to ask when our programmers suggested it as a new access method.)  REST stands for representation state transfer.  In essence, what we have is the complete, fully operational ZMath Engine accessible via our domain through an XML (extensible markup language) feed.

To access this version of the engine, you request it from our order page by clicking on ZMathEngineXML.  You estimate the number of transactions you would require per month and we return to you a Software Use Agreement.  Once we receive the accepted form in return, we supply an XML schema along with your user name and password.  You then set up your application to go to the URL for ZMathEngineXML and feed the XML stream.  The ZMath Engine picks up that stream, runs your transaction and returns an XML stream that contains all of your results.  Viola!  You've accessed the ZMath Engine component with very little commitment from you.  The beauty of this is that many progamming shops can access the engine in literally minutes once the schema is delivered.

 This service isn't designed to address everyone's needs.  Many installations will still opt to take possession of a component and host it locally.  However, for those that are trying to quickly, with very little hassle (i.e. contract negotiation, technical spec'ing, etc.), very little commitment and very little programming work access the power of the ZMath Engine, the RESTful web service, ZMathEngineXML, is the ideal solution.

If you have any questions about this exciting new development, please feel free to contact us.

Options and Variations

by Michael Shohoney January 26, 2009 09:37

Okay, you've set your defaults and you've selected your loan type.  Now what?  Well, unless everything is set exactly the way you want it and you know that for sure, we suggest that you look at the Options and Variations screen.  You can do this one of two ways.  First, if you check the box at the bottom of the Loan Type screen and click Submit, you will be taken to the Options and Variations screen before you're taken to the entry screen.  If you do not check the box, you can access the Options and Variations screen by click on that tab from the data entry screen.

Once you're in the Options and Variations screen, you can choose to change a few of your defaults, if necessary, on a loan by loan basis.  Or, you can use this screen to add features to your loan.  Let's look at what defaults we can change first.

1.  Interest Type--You can change from simple to Add-on or discount, if applicable.  This is highly unlikely but is there in case you need it.

2.  Basis--You can change the accrual basis.  This is probably the most used of all of these.

3.  Odd Interest Adj--This would be the second most popular default change.

4.  Prepaid basis

 Now let's look at the loan features that we can change.  I will list all of them here.  Each loan type is set up to prohibit selection of any options that do not apply to that particular loan type.  So, if you do not see one listed in your screen, that means that that option is not available for your loan.

1.  Balloon--Select this if your loan has a balloon payment.

2.  Construction--Select this if your loan has a construction phase.  This can be construction only or construction permanent financing.  All calculations will be done as documented by Appendix D of Regulation Z.

3.  Insurance--Select the appropriate insurance type if your loan has insurance.  We offer standard credit life/accident and health (i.e. disability) insurance, private mortgage insurance, FHA MIP and VA insurances.

4.  Accelerated--Select this if your loan is going to be structured as an accelerated biweekly or weekly payment loan.  An accelerated biweekly (or weekly) loan is a loan where the standard monthly payment is divided by two (or four for weekly) and the resulting payment is collected every two (or four for weekly) weeks.  A new term is calculated based on the new payment amount.

5.  Buydown--If your loan has an interest rate buydown feature, select this.

6.  Skipped Payments--If you loan has payments that are skipped each year, select this option.

7.  Differing Freq.--This is an highly unusual option but it allows the interest and principal of the loan to be paid on differing frequencies or on different dates.  This is usually used in commercial lending.  For example, interest may be due monthly but principal is due quarterly.

 Once you have selected the options and variations that apply to your loan (yes, you may choose more than one at a time), click on OK and you will be taken to the data entry screen.  If applicable, more panes (i.e. data entry areas) will be displayed to take the information for each of the options you've chosen.  In future postings I will discuss the data entry process and look at each of the options.

Component Technology; The Answer to your Problems?

by Michael Shohoney January 19, 2009 10:46

Component technology is a hot issue in the software development world.  Components allow software developers to add capabilities to their systems without developing the technology themselves.  They are able to concentrate their efforts on what they do best and leverage the expertise of others to help make their application the best it can be.  It’s the old “why reinvent the wheel” philosophy.


Here at Math Corporation, we’ve always believed in the use component technology.  From the very beginning, we offered the facility to move our formulae into your software.  This started with our very early versions of ZMath® that were written using Lotus® 1-2-3®.  Once the technology became available whereby components could be easily incorporated into development efforts, we wrote our loan calculation engine.


We wrote the ZMath Loan Calculation Engine using ANSI-compliant C so that we could deliver the software on virtually any hardware and software platform.  The working theory was use the same core code set and merely change the interface function to deliver it to any platform.  That working theory has proven itself to be quite true as we’ve delivered ZMath on everything from DOS (yes, way back then) to a System/390 mainframe using the exact same code from one platform to another.  We have covered it all, including Java, .NET, Unix, AS/400, etc., etc.  This platform-independency assures our customers the ultimate in portability and homogeneity.  Imagine having the exact same results across all platforms in your lending systems.  Total agreement in all numbers!


The other benefit of component technology is shelf life.  Since the subject matter of the component (in this case, calculations) is something that needs to be addressed regardless of the system interface, as your systems change (same, different or multiple platforms), you can implement the ZMath Engine going forward.  That is, as you change systems, you need not change the source of your calculations; a one-time license for a lifetime solution.  Leave the technological, regulatory and practices and traditions updates to us.  No worries from here on in.


As you can see, component technology, especially when it comes to lending calculations, Regulation Z (APR) calculations, amortization schedule production, can save you a ton of time, effort and expense when leveraged properly.  License the ZMath Engine and you have a one-time expense for a lifetime solution!  Please feel free to contact us to see how we can help you.



Refinance: The Road to Recovery?

by Michael Shohoney January 7, 2009 07:37

With interest rates at near-historic lows is a refinance boom on the way and will that wave be enough to mend an ailing industry?  That is the $64,000 question (seems a little under-priced doesn't it?) these days.  I have always believed that the mortgage industry is a self-healing industry and that refinance waves are often the beginning of the healing process.  The wounds suffered during this past (and current) crisis are certainly more mortal than those that we've seen in the past.  However, the industry can still recover from them.  How?  By sound lending to what have been reliable customers.  There is a real opportunity out there for existing mortgagors to lower payments and pay off loans with shorter terms.  These refi's can be the foundation of the rebuilding of the secondary market.

How do we go about that?  I have always believed that mortgage lenders have under-marketed themselves to their established borrowers.  Well, now is the time to approach those people with this opportunity and, in turn, boost your volume and generate business.  Out of this new opportunies will spawn.  It may not be the cure-all but it is certainly one way to begin the healing.

Setting Your Default Values in eZMath and ZMath

by Michael Shohoney December 23, 2008 05:18

Prior to making any calculations in our loan calculation software (eZMath and ZMath), it is very important that you take the time to properly set the defaults.  How do you do this?

On the loan type selection screen, select the Defaults tab.  A screen will be loaded that offers a number of choices.  You should set values for each of these and those values will be used on your calculations within eZMath and ZMath.  You can alter some of the choices in the Options and Variations screen on individual loans but what you choose as defaults here will be displayed as the default selection in that Options and Variations screen.  Below I list each of the default items, the options within each of those items and some suggested values that you may want to use.

1.  Interest Type--Your choices you have on this item are Simple, Add-On and Discount.  Simple interest is going to be used in virtually any loan you calculate and should be the default value you set in this item.  It is possible that if you are in commercial or consumer lending that you may encounter an Add-On interest rate in an installment loan.  If you do, you must set that default here as Add-On is not a changeable option within the Options and Variations screen.  Discount interest is only offered on single payment loans and can be changed in the Options and Variations screen.

2.  Basis--The choices you have on this item are 30/360, Actual/365, Actual/360, Actual/Actual, 30/365 and 30/Actual.  These are accrual bases for the calculation of interest.  One of these will apply to your institution's policy and/or your lending discipline (i.e. consumer, mortgage or commercial).  You should set the value to the accrual basis you use most in your day-to-day lending.  This option is changeable on the Options and Variations screen so if you have a loan that is a different basis than you normally use, you can easily change it for an individual calculation.  We will have a blog post regarding basis in the near future.

3.  Odd Interest Adj.--The choices you have on this item are Amortize, Prepaid--Borrower Paid, Prepaid--Non-Borrower Paid, Amortize--Adj. Final Payment, Irregular First Payment and Ignore.  What you are choosing here tells the loan calculation software what to do with the interest accrued during a long or short (i.e. irregular) first period.  That is, loans where the time between the advance date and the first payment date is not exactly one unit period.  This selection is changeable on the Options and Variations screen so you should set this to what you normally do while remembering that you can change it on a loan by loan basis.  We have a blog post regarding this selection in the near future.  For the time being I will tell you that if I was a mortgage lending, my default setting would be Prepaid--Borrower Paid.  If I was a consumer lender I would set it to Amortize.

 4.  Prepaid Basis--The choices you have on this item are 30/360, Actual/365, Actual/360, Actual/Actual, 30/365 and 30/Actual.  This is the basis that you use IF you've selected one of the prepaid choices on Odd Interest Adj.  What it allows you to do is accrue that prepaid interest on a basis that is the same or different than the accrual basis on the loan.  The necessity for this choice came along due to the standard practices used in the mortgage industry.  It is the general practice to have a 30/360 accrual basis on a mortgage while utilizing an Actual/365 accrual basis on the prepaid interest.  You should choose the value here that corresponds to the practices of your institution.  This item is changeable in the Options and Variations screen.

5.  Interest Rate Rounding on ARMs--The choices you have on this item are Round Up, Round Down, Round to the nearest 1/10, Round to the nearest 1/8, Round to the nearest 1/4, Round to the nearest 1/2 and No rounding.  This item sets the rounding used when adding the values of Index and Margin on loans that have an adjustable rate.  You should set this to the policy of your institution.  This item is NOT changeable in the Options and Variations screen.

6.  Rounding Method--The choices you have on this item are Nearest, Round Down and Round Up.  This sets the way you round the payment calculated by eZMath and ZMath.  You should set this based on the policy of your institution.  As a general rule, we see most lenders round their payments up.  The reason for this is that by rounding up you guarantee a final payment that is always less than the regular payment amount.  This tends to be psychologically better from the borrower's perspective.  This item is not changeable in the Options and Variations screen.

7.  US Rule Accrual--The choices you have on this item are Actuarial Accrual and US Rule Accrual.  You should set this default to the correct value for your state regulations regarding interest accrual.  There are a number of states that require the use of US Rule Accrual.  US Rule Accrual does not allow the capitalization of interest (i.e. accrual of interest on interest).  If you have questions regarding the status of your state and the setting you should use here, please confer with your compliance officer or legal counsel.  It should be noted that regardless of what you choose here, all APRs in eZMath and ZMath are calculated using the Actuarial method of calculation.

 In conclusion, what you set as your defaults on this screen can greatly influence the results you get using our loan calculation software.  By using some common sense, advice from the policy makers at your institution and paying attention to the practices and traditions within your lending discipline can help you effectively set these default values so that working with the software is easier and produces the results you seek.  As always, if you need any help with any of this content, please feel free to contact us.  We're more than happy to help you get things set properly.


by Michael Shohoney December 11, 2008 07:21
Our newest product is up on the web site and that is ZMathReverse.  ZMathReverse is a reverse mortgage calculator that structures and discloses reverse mortgage transactions.  We offer HECM, HomeKeeper and general reverse mortgage calculations.  Give it a try and let us know how we did.

How to Select Loan Type in ZMath and eZMath

by Michael Shohoney December 11, 2008 07:15

The purpose of the Calculators 101 area will be to provide tutorials and primers on how to use our software products.  The first installment will be a thorough definition of the loan types we offer in eZMath and ZMath and how to choose the correct loan type for your particular problem. ZMath­­® offers the following loan types: 

1.  Level Payment Loan--Fixed-rate, installment loan with or without a balloon payment.  Can have single or multiple payment streams.

2.  Single Payment Loan--Installment loan with one repayment of principal and accrued interest.

3.  Interest Only Loan--Installment loan with interest only payments until the final payment where all principal is paid with the final accrued interest.  Can have multiple payment streams.

4.  Plus Interest Loan--Installment loan where principal reduction payments are level and made on a regular basis along with payments of accrued interest.  The principal and interest payments may be combined or made separately or at different frequencies.  These are also known as constant payment to principal loans.  Can have multiple payment streams.

5.  Random Rate Loan--Installment loan where the interest rate changes over the life of the loan and the interest rate changes are not tied to an index nor follow rate caps, etc.  These are often referred to as renegotiable rate loans.

6.  Adjustable Rate Mortgage (ARM)--Installment loan where the interest rate is tied to an index and rate changes are limited by rate caps.

7.  Graduated Payment Mortgage (GPM)--Installment loan where the payment amount graduates by a percentage (or fixed dollar amount) during some time at the beginning of the loan.

8.  Graduated Payment, Adjustable Rate Mortgage (GPARM)--Installment loan that combines both a graduated payment feature along with an adjustable rate feature.

9.  Interest Only Period/Repayment (Level and ARM)--Installment loans that combine a period of interest only repayment along with a principal and interest repayment.  We offer both fixed rate and adjustable rate versions of this loan type.

10.  LIBOR/COFI Loan--A type of graduated payment, adjustable rate loan where the interest adjustments and the graduated payment adjustments occur at different times.

11.  Multiple Disbursements (Draw Notes)--Installment loans where there are multiple disbursements from the lender along with repayment by the borrower.  These are only used in the cases where the disbursement dates are known in advance.  Do not confuse these loan types with construction loans as defined by Regulation Z, Appendix D.  Only use this for construction loans if the amount and dates of all of the disbursements are known prior to closing.

12.  Quick APR--An APR (annual percentage rate) calculator that you can use to audit APR figures on loans where you already know the payment streams.

13.  Payment Option ARM--Adjustable rate mortgages where the borrower has the option to make a minimum payment rather than the full principal and interest payment.  We offer versions with and without an interest only repayment phase.

To select what loan type applies to your particular problem can be very easy or can be somewhat baffling.  Obviously, if you only have one payment, then single payment loan is the loan type you should choose.  Likewise, if you have a common fixed-rate, installment loan, level payment loan is the loan type you should choose.  But what if you have something that is more complex than that?  What clues can you use to help you choose the correct loan type?  Here are some tips: 

Does your loan have an interest rate change feature?  If so, is the interest rate change tied to an index?  Are the rate changes limited by rate caps?  If so, your loan has an adjustable rate feature. 

Are there other features on your loan?  Does the payment amount change based on a percentage or dollar amount?  If so, the loan has a graduated payment feature. 

Is there an interest only repayment period?  Is that interest only repayment period followed by principal and interest repayment period? 

These are the questions that you need to ask as you analyze the loan you are working with to determine what loan type to select.  As you answer these questions, use the loan types list to narrow down your selections.  Ultimately, you should arrive at a single selection.  Try that loan type and see if it does what you need it to do.  If it doesn't, see if there is another loan type that may apply.  If ultimately you are unable to decide on a loan type, contact us.

Welcome to Math Corp.'s Blog

by Michael Shohoney December 3, 2008 07:01
Today we start a new era at Math Corporation by opening a blog.  We intend to use our blog to provide current information on our products, their pragmatic use, industry news and trends and regulatory issues and their solution using our products.  We invite our web site visitors to share their views with us by using the Contact tab at the top of the page.  If you have an idea for a post or would like to comment on a post please send it to us.  We hope to make this area an exchange of great ideas and we're going to count on your participation.  Here's to blogging!

Tags: ,